guess basically 1876 because it was the 1876 presidential election that created the opportunity, the atmosphere that led to the ending of reconstruction, and eventually led to the creation of jim crowism, and what i often call apartheid in the southern part of the united states of america. so if you look at was going on from 1876 to 1895, in that 20 year period we saw the beginning of the end of full citizenship

of african-americans in this country. so by the time robert smalls died in 1950, he died brokenhearted, and financially, not near as well off as he once was. and so i have spent a lot of time talking about the history of this. as i used to say to my students when i taught, if it happened before it can happen again. and we see all the speculation about what the supreme court is going to do with the most important civil rights act, which i think was the voting rights act of 1965. and most experts think that

that's about to come to a significant, and i call, a noble end. oh grams of affirmative action, that simply means you're going to take positive steps. you can't be passive. you've got to take positive steps to overcome the current effects of past discrimination, the history. not going to happen by itself. if you bring that to a close, and people are speculating that that is about to happen, in fact i saw a few days ago one of the leading scholars, legal scholars in this country who was saying that he believes that chief justice roberts planned to be

the chief justice to bring a close to the civil rights movement as we know it. and i don't know if anybody has looked at the numbers and see that unemployment in the african-american community, runs about twice where it runs in the white community. that women are still earning 72% of what men earn in our society. and think that the glass is half-full. the glass is maybe a little more than half-full, but it's not fall. there's still a lot of work to do. and i don't think we're going to successfully navigate through this, if you don't understand fully exactly what it is you're

dealing with. if the people fail to learn their lessons of their history, of history, they are bound to repeat them. and i'm trying to sound an alarm here to make sure that people who have risen educationally and gained different wealth, just remind them, look at like robert smalls and you can see, with the stroke of a pen and the few court decisions, put them in the trash bin of history. >> let us know what you reading this summer. tweet us and booktv, posted on her facebook page, or send us an e-mail at booktv@c-span.org.

>> booktv's book club returns next month with this town, to parties and a funeral. read the book in a cage in her facebook page and on twitter. look for daily book club post starting sept timber third to get the conversation going. >> now, afterwards future sarah garland author of "divided we fail," the story of an african-american community into the air of school desegregation. she is indeed the guest host marc lamont hill, and african-american studies professor at columbia university. this is about an hour. >> host: tell me, why did you start to write this book? i know your first book was about like games in america. why this book?

>> guest: in some ways it is in some ways it is and i got into these things around segregation in the suburbs of my last book, and was looking at exchange segregation between school district in long island so that spurred me to think about these issues. that the reason i wrote it is because i'm from legal. i grew up going to the public school there, and i was busted when i was in second grade to a school that was an inner-city and i'm surrounded by housing projects. so is something i've thought about actively since i was a little kid. and so when the case went to the supreme court i was obviously very interested in following it because it was very personal in some ways. >> host: talking about the personal peace to it. when you're going, when you bust into the inner-city, did you have a particularly sort of stance on the question of

desegregation question of school integration? >> guest: you don't think about. looking back, even when i was reading back at the reaction for the kids in the '70s when they started busting, a lot of the kids would take him you know, i like it at the school. they didn't think about it. it was the same way for me. as i got older i started sort of think about not only going to schools and being surrounded by poverty that it didn't seem a neighborhood in the suburbs. that's deathly eye-opening but at the same time the schools i attended, there was tracking so you have the regular program, honors, and then you defense program. those work very closely along race. so as a kid you absorb that and you started think about it, and i remember being in high school and one of the only classes i took where it was actually mixed

between the tracks, a global studies course i think, and it was an african-american student in the classes said she tried to test into the dance program at one point and she couldn't get in. she was obviously very intelligent, well spoken. that's stuck with me. ll remember that, the 10th grade, thinking about these different tracks but and i think reflecting on that, you had desegregation but it was not that same time within a school used to let segregation and you're sending a message to kids when your class is full of white kids that are supposed to be the smart kids, and classes full of black kids were supposed to be do not smart kids. myself and a lot of my classmates, that hits home and it makes you think about how this has worked out. i've always been really interested in this idea of how do we do different cities well. >> host: the dominant

narrative into american life, particularly american legal education history over the past 50 years, almost 60 years now, has bound -- has been the brown decision. this idea that if we could desegregate, if we could force the hands of schools and policymakers that we have a more diverse school, we could have greater educational equality is an equity. your book pushes back against that somewhat. but brown v. board of education, talk to me about what brown has meant for educational equality and access in the country so far. >> guest: it's a hard question because i think we hold up brown as this amazing seat, that we accomplished this, that we rolled back segregation. they would look at what happened afterwards and we see how incredibly difficult it was, you know, divisive in some ways but also united spirit in criminal

progress after that that was very frustrating i think the people. and so it seen as a great victory but i think also it's important, given the research and look back and see what we didn't accomplish it. and so when is looking at desegregation and how it was finally implemented 20 years later after brown actually was handed down, when we started bussing. but the way these programs are set up still maintain white privilege in a lot of ways and class privilege so that for kids and black kids had to be bused from one time. part of that was logistics but part of it was also maintaining the status quo so that you didn't have white flight and so. so i think the brown decision, and it's a difficult decision. one of the most interesting books i've read is what brown v. board of education should have said, their academic second one the justices but it's the

justices done it differently how it might have changed and. things but it's interesting. you probably wouldn't have had the unanimous decision which was very, very important but it was a way to look at the counterfactual and think about what a victory was. but also what it didn't accomplish spent is difficult to write a book the pushes back against such a celebrated public policy? one o of the great victories of the 20th century for america, not just black people. did you have any value about pushing back or highlighting the story of people tragedy oh, yes. this is not the book are expected to write. i went into it thinking that, in illegal especially, the integration was a good thing. it brought people, do. it brought people together. it may be think differently about the world that i might have otherwise and a lot of my classmates and i think one of

the points i make often in the book is that during the heyday of desegregation and busing come you saw the black-white achievement gap shrinking faster than it ever has. so that's a big deal. i think, so the accomplishments. >> host: do you think that was having basic -- i mean, it was so huge in the '40s, '50s, '60s. it may have shrunk the gap. >> guest: i think that's really hard to separate that out. when you talk to people who researched, how does integration affects kids, it's hard to say is it because they are learning from each other or is it because if you're a black child in a

classroom with a majority of white middle-class, well, you might have some more resources at the school than you'd otherwise have. one of the people interviewed in the book, his favorite thing was green follows white. that's why he supported desegregation at the time. so yeah, i think that's a really, it's a difficult complicated question. and there's also a lot of other things going on at the time that achievement gap is closing it wasn't just desegregation i don't think. i want to make it clear that i think is a very important thing to do. but i did, i was surprised that he ended up writing this book that was looking at what went wrong. >> host: but it's done because you open up the book and the first section is about these letters. and i found it compelling as you tell the story of this girl who dreamed of going to central high school. she dreamed of it all of her life, 15 years of her life. she was essentially told she

couldn't go because of racial, the school could have more than 42% of african americans and as a result shows put on a wait list that might derail her dream of getting a good education, becoming a lawyer. that was compelling and jarring. how much of that came up in your research? are these just telling cases or a narrative of people? >> guest: i think those stories to me is what made it interesting is how emotionally connected people felt with the school, with central high school. but how they saw -- not just because, part of it was she wanted to be a lawyer. no other school in the city had a law program. but it was also emotional for nearly connection, her dad had gone there, her mom had gone there. you know, it was the black school in louisville for decades and decades. and so people had a very emotional connection to it, and

saw it as a very good school, and it was a very good school. at the time in the '80s. eventually they put in an advanced program, so you had the elite of the black community was going to that school. the people that talked to in the book, there were two things always going on, this concern about educational quality but also about our school and this is our community and it's very important that we have some say over our school. >> host: as people got those letters, and how many letters in the book, people got the sense that engineering in the 1950s was producing outcomes that may be an unintended but nonetheless harmful. how soon the people in the town realize they probably needed to make some sort of a judgment -- adjustment transferred there

were lots of fights, sort of ongoing constant conflict in some ways. anselm i think that for some people, activists especially. i profile activists and who were really behind the fight and they had gone to central pre-desegregation and felt very connected to the school. and so they had been watching this and they were really concerned that desegregation was going to close central. they have saw the writing on the wall because so many of the black schools have been closed as a result of. >> host: why was a closed? as opposed to simply shifted demographically? >> guest: it happened a lot. it happen all over the south and elsewhere, where to make busing work, you had more schools in a lot of places then you needed because he would split the population. so there's a real interesting story in north carolina. there were these two schools, a

black high school and a white high school, and when have to desegregate, they just closed the black school. and part of that, in louisville they're trying to convince people, white parents not to flee to the suburbs, the private schools, and to do that they had to convince them to keep the kids in the public schools and in their thinking, i think part of it was that they're not going to want to send the kids downtown. and a lot of their schools have been underresourced and were falling apart. i think in the mind it makes sense to close and because we have been putting a lot of resources into them for a long time. so we might as well shut them down. and it was partly just to make it work. but i think it was logistical but also there was some, how do we maintain, how do we keep the white middle-class happy? >> host: by the activists were pushing back. based on the logic of the argument that might've been

totally okay with them. there were other reasons. part of it was the condition of the school itself. >> guest: absolutely. it was a tradition, it was a tradition of black empowerment i think, that we built this school ourselves. that we did this largely without a lot of help from the school district, without a lot of resources. we had to fight for every penny. so i think a lot of the people that i talked to solve the way that busing happen, or just the attitude of desegregation is saying that black people basically failed in doing education in their community and they need to sell. they need to have their kids sit next to a white kid. i heard that a lot. i think there was a sense of we are losing -- >> host: from the committee or from outside critics?

>> guest: i heard that from the african-american activists. we shouldn't have to set a black child next to white child for them to learn. i think and understandable frustration and their that our culture and our community is not being recognized as good as, and so i think that was one of the problems with the way desegregation was sort of thought of or the way it was implemented. it's not we're going to share resource. it's we are going to help you sort of thing. >> host: is there any danger in that approach? going back to the 1951 set of saying we're going to hold on to the failing school, pre-1964 mindset. just so we can say whatever own stuff, we have our nationalist kind of posture, irrespective of what the outcome is for the kids. >> guest: yeah, i agree.

i was telling the stories of people's stories as having been told or his perspectives have been out there. i agree i think it's a really difficult question to say, you know, and it's a question we're dealing with now, do you close the school down because it's failing or because it doesn't have enough students, because test scores are low, or do we try and keep it together even though those things are happening for the sake of the community? and i think it's a really difficult balance, and i don't actually have an answer. >> host: none of us do, right? one of the real virtues of this book, it was amazingly written is you chronicled his perspective. you highlight this perspective but you also help us track how the activists engage in the pushback. oftentimes i think these victories are celebrated by

people who don't get a sense of the footprint. what does it take to get there. talk a little bit about that. these activists who ultimately pushed to advance the legal argument that really should be a time for our country. how did they do it? >> guest: well, really a bunch of very interesting and eclectic people. they came at it from different, very different places. although a lot of them have been friends, one of them was this very precarious football coach andy had coached attitude. it been a gadfly. he'd written at it was costly for the newspaper. they were sort of at the edges and activism in terms of, and kind of knew what they were doing when it came to doing committee activism. another have been really part of the black nationalist movement in the '70s and was involved

in that. so they had grown up from that and they were of the civil rights movement in some ways, and of that time period but also sort on the outside and critiquing it but from learning from it. they knew what they were doing. a wonderful lady, and she was, she got very involved in protesting the first iraq war in the '90s. and she was very involved and that the she served that pulled in, because she wanted to save the school she had gone to. they knew what they were doing, but they were also very alone i think. they were a minority in their dignity in a lot of ways. i mean, it was an act -- and an anachronism to be african-american activists fighting against, which makes it interesting. >> host: that's the most

compelling -- compelling part. how do you as a polite person communism in a black committee convince black people that getting rid of white people? is the best way to make schools better. >> guest: the thing is that they weren't, they were behind the first federal case, and they didn't end up going onto the supreme court because they thought they had won a fight which was central high school. that's what they cared about. and some white parents took it on. but when i sing research it turns out that in a lot of places you had fights, or you have the naacp on one side fighting to maintain desegregation programs or expand them, and then you would have a black school board member or urban layperson or a group of black parents on the other side

saying, you know what, let's get rid of this busing program, like we want our neighborhood schools back. they were lonely but they weren't necessarily completely alone. >> host: they're also fighting against these power brokers. and i guess i wonder, and maybe you can answer this. maybe you can enter this in the voice of your subjects. i also wonder if organizations like the assault on to this because they think it makes policy sense, because they have an ideological commitment to this approach, if it's its own thing. or if they are holding on to a tradition? the naacp in many ways makes its phones politically on brown v. board of education. did you get a sense from the people, with a resentful of the black organizations or the stance they were taking? >> guest: yes in some ways. and transport some people --

there's other issues to say, i think it became, there you didn't have a huge uprising in louisville when they're bringing this case, you didn't have a lot of black leaders in the community. you definitely had a significant come in, some of those leaders saying this is the wrong thing to do but you didn't have a big uprising against them. i think there were people in the community said yeah, this hasn't really gone our way. but i mean, it is an interesting question and i don't know. >> host: i can, i do think there is an answer. i often wonder and after reading this book i become more sort of compelled to question the reasons why these organizations like the naacp, if not on a

national level certainly on a local level has the symbolic value but don't necessary play out on the ground for the people who are supposed to be held. >> guest: i think in some ways i think there is a need for our schools to be more diverse than they are. it's maybe not an academic need, but if you think that there is this idea that if our kids are educated together, then maybe our country will be less divided politically, economicaeconomica lly. maybe we'll understand one another better pics i think there's a reason for it, not just the traditional aspect but i do think -- >> host: a resource question. >> guest: yes. how to get money into poor minority neighborhoods. well, one really fast way to do that is, for example, in new york if you have -- it is

horrible. i think that's what the educational forum that is trying to do now is trying to say okay, desegregation, it didn't work or it's gone but it's mostly over in most places, so how do we deal with that? how do we deal with the fact that in most cities and urban areas, it's not even a possibility. it's not even feasible anymore. >> host: based on popular opinion, based on his legal term we see? >> guest: legally, it's very hard to do forced busing anymore. i write about the school choice movement and i really think that's gotten into the consciousness of the merrick in public and people really feel like they deserve the right to have a choice of schools. and so i think turning around and saying okay, we're going to implement a busing program and

havhad to send your kids here, u have a huge -- i don't think it's politically feasible in that way. even in louisville it's a control choice. it's a choice program but the choices are managed. so i think that that sort of undermined the african-american can do this. is in terms of where people live i think, you know, you've had the growth of cities. and in some ways it's making, some schools are becoming, in the suburbs yet neighborhoods that are becoming more diverse and in inner-city you have the white middle class moving back in in d.c. and new york. so there's some opportunities. but i don't think forced busing, it's not going to be at. >> host: i'm glad you mentioned that. it sort the demographic landscape that has shifted so much that it almost makes no sense to even sort of rely on ththis sort of policy movementsf the '50s and '60s, urban

areas. using new york city as an example, brooklyn or harlem is so different now than even in the '90s. so i mean, i guess part of what i wonder, i'm still interested in the parents before we change gears, if the parents are taking account of those kind of she is, politicians, demographic shifts and making demands in louisville, are they making demands for new approaches to education reform? artifacting all the in or on the locked historical moment as well? >> guest: i think we have you talked to parents -- [inaudible]. i hear people talk about parent involvement in schools, parents are really focused on their kids. and was going to happen to them and getting to the very the school they possibly can. and some parents have more savvy than others and figuring out

which school tha it is common se people value different things about schools. you know, being close to my house may be, you know, very important, or the teachers are nice to me and care about my kid, that kind of thing. so people way different, i think parents way different things. but in all the people i talk to in louisville, the parents, that was the motivation. so they weren't thinking about, i mean even crystal meredith who took her case to the supreme court. her motivation was, she wanted her son to get into the school that she wanted him to go to. so it wasn't really, i want to tear the system down. i don't think that's how she started out, and i think for the most part that was the same with the other parents. we weren't really thinking big picture. we were thinking very small picture. my five year old. >> host: but it becomes a big picture, write down five i think

that's what's so difficult about school reform is that you have these clashes, and so it's really hard to think about the larger, the good of the larger society when it's your child. my mother has spent time in the school were i would element to school before busing. she was familiar with the school and she did not have -- she was a social worker. it was a rough school. it was high poverty area, and so when she was in the need to that school, and i imagine it must have been difficult, but at the same time it had been, they had really i guess worked on the school to make it possible for middle-class families, so they had this advanced programs and that's what made okay i think my classmates and i to go there.

and stated. i was only, i'll have to go there for two years and i stayed for four, because you know it was a good program. so i think our parents could say we're doing a good thing because we are taking part in busing and we're sending our kids. but at the same time it was always -- it was also really a good program. >> host: wended the program sort of died? >> guest: my program is a good school. house of representatives [inaudible] >> guest: louisville is, i mean, there's not very many school districts around the country. i wrote about a study recently that looked at how few districts, 200 o 200 is somethig still to desegregation but louisville is still doing, just elected a school board that supported desegregation. they had to fiddle with it because they can't use use race because of the supreme court

decision so they're using income and parental education and some of the factors, and race as -- >> host: in louisville in particular? >> guest: absolutely. i think this is what got the lawyer who was involved in bringing this case, got so angry because they sort of drew two areas of the city that they were going to draw from back and forth from and the black areas of the city and the white areas of the city so it was very clear. and i think part of the frustration was that, and part of that frustration with the program was that you busing going on and integration going on between poor black students and upper-middle-class white students, but then you also had black students living in somewhat middle working class neighborhoods being sent to very poor white neighborhoods which

is something i think in louisville and kentucky isn't maybe more of a factor, but you have, you know, population of low-income and working-class whites, very large population there so you have the mixing so you still have very high poverty schools. so it is perfectly integrated racially, but every kid in the school was for. >> host: which creates its own problems. >> guest: which doesn't necessarily solve, i think it's important for the kids to know one another, but it doesn't necessary solve the resource problem. >> host: which speaks to other broader issues that we have to take seriously with ed reform in particular but broader social policy. i want to talk about all that stuff that we will take a quick break. >> guest: okay. >> tonight on c-span2, booktv in prime time.

>> host:time. >> the event will include former representative anthony weiner. will bring a live preview at 6 p.m. eastern and the debate at seven on c-span. >> host: put you on the spot but represent tom cole, what's on your summer reading list? >> well, i'm reading david roll's wonderful book, "the hopkins touch," about halfway through that not which is on harry hopkins, legendary need

for fdr and a cornell graduate. we probably don't have the same politics but i admire his political style and it's a compelling life. probably next up for me, i haven't had chance to read the kaiser book "act of congress" but the reviews have been pretty compelling. that's going to be an interesting case study. when you're reading a book where yoyou know all the characters, barney frank and senator dodd, you know some of the legislators, it's interesting to get a perspective. and then there's a book that i just ordered on james byrnes, who was legendary south carolinians politics. a political reporter put this on my radar said you will love this book. and this is a guy who very nearly was vice president instead of truman in 44. and continue to play an extraordinary role in politics and became one of the architects of nixon's success in the south and 68 and 72.

he just popped up working with harry coppens on the 1940 in this book i'm reading on the 19th 40 nominations of fdr. which was pretty neat political work. so look, i like to read about the process and i like to study history. i ought to read more policy unless his or budget seem to learn better from history. >> now we return to "after words" with sarah garland on her book "divided we fail." >> host: so the book talks about desegregation and ultimately the parents frame it as a policy that failed. talk to me about the reasons why. >> guest: the main reason i think that they were so frustrated is the way it was implemented and it ended up undermining in some ways what the black people wanted for their schools.

so you had hundreds, thousands of black teachers fired as busing was implemented and that's obviously not what people were looking for when they were fighting for this, for desegregation of schools. and again like i said earlier was to make way for bringing white kids and black kids together and not scaring white parents away from the school. >> host: the argument is, i want to unpack this a little bit. the argument is black teachers are fine for black kids, but white people, white parents don't want, they would be scared away by -- >> guest: i think that was the thinking at the time. i think that's what happened and also i think you have mergers that happened in louisville and the county system merged. that was a fairly rare situation but you also had school closures. but a day think that was part of the thinking. and also you had, there were

some situations in louisville that i write about what the school is going to become a white school is going to be closed and the parents raised hell. and so they kept that school impact, even though enrollment was an issue and so. those parents have clout and political savvy. and that is something to do with the. your black principles were fired and administrative. so you have this fallout that a don't think people anticipated. >> host: how did he not perceive that? i kept thinking how did people not perceived as. because the finite number of resources, more teachers than you need. the good event in expectation of fairness that we have the seniority system or something and the teachers who were newest would be the first fired, but in the '50s and '60s and '70s, how we doing to anticipate this? was this not for siebel? was this naïveté? where they sold eight --

>> guest: my understanding is they just want it, we just needed to get rid of this dual system of education because there was so much more unfair. having these two systems weren't have different salary scales for black and white teachers, just the case before desegregation where you had, i mean, you couldn't have any integration between faculties. and get sick and -- you had to get rid of that. so i think, you know, i don't know. i have no idea if people foresaw. i would imagine you actually had in the south, i think you have some ambivalence about this because i do think that some black people saw that like this is potentially going to hurt my school, or i'm going to lose my

job if we have to integrate with the white school because they are not going to want me teaching their kids. there was an interesting, there were some polls that were done and they are not very reliable, but they are interesting in that they showed right after brown v. board some ambivalence among black southerners. i do think that some people saw it, i still think that it was an important, getting rid of the sake get a schools was maybe worth that risk, i don't know. i get, you know, it has this fallout and i think maybe it could've been anticipated, but in louisville especially there were reports that were done and you had civil rights activists actively saying and tracking us and saying look, look at how many black teachers we had, how many we have no and how many we used to have. so people were pointing it out

at the time. >> host: a subtext of your book, maybe i'm reading too much into it, please come fim, i do that a lot, is that black activist, black policymakers, black advocacy groups are cost of changing symbolic victories at the expense of real policy victories. it seems to me this was for siebel. it seems to me that, as you indicated, all the signs were there. but they ended legal segregation was such an important symbolic victory, maybe not just for black people, in a, brown v. board is such an important symbolic victory that all these other residual effects, really the collateral damage done, were working. because we ended legal segregation. would that be a fair analysis? >> guest: i mean, it's hard for me to say. you know, i don't, i think every time you're looking at these

issues, there's feasibilifeasibili ty versus like a dream. there's the dream of what could be and then there's like what's practical and what can we do, what's politically possible. and what was politically possible in the '50s, you know, it obviously brown v. board have a lot of other apple effects that i think what a big deal and were very important. i don't know if calculations were made and they said we're not going to get everything we want but we will will at least get this big symbolic victory. but, yeah, i think winning the differences, i think that it was still an important victory. i'm not going to say it wasn't. although in that book -- >> host: not that it was important,. >> guest: it didn't work like you're supposed to work i think is what happened. it was really, i think when they were fighting, there was this

dream that this was going to open up the doors for black children and white children to be educated together, and they would finally share resources and there was limited progress but still today, you can look at the resources that minority schools have and compare them to the suburbs, and you see these disparities. >> host: there's another piece to this. part of it was the collateral affect of, sort of liquidating schools in terms of teachers, human capital and those sorts of things. but there was also the community affect. in your book you talk about how people were pushing back, not just because teachers were fired and all that stuff, and not just because programs were lost, although that was important, but it that communities were broken. communities were fragmented, right? >> guest: that was one of the

big issues people talk about is your neighborhood school, and i don't have an experience of the neighborhood school so i don't really get that. because i didn't go to my neighborhood school. i love my elementary school, but that was a very important to people and they really -- >> host: what does a neighborhood school within the logic, within that perspective offer a committee? >> guest: i think especially looking back at the history of southern black education, that there's this deeper pride in a lot of the schools that were built, because it started out that these were, black education in the south started out in people's homes and churches, and so this is, you know, it wasn't something that white society said here's your school. it was something that the black unity build themselves in a lot of ways and they got some help from philanthropist in the north in a lot of cases, but there was

a lot of pride in it. i think so this was more than just the school down the street where i send my child, and it's convenient to my house and all my neighbors send their kids there and we can hang out at the pta meeting. we built this, this is our pride of our committee. it was very symbolic. >> host: i want to really get into the symbolic is trumping the practical and policies. >> guest: yet, but i think symbolic matters. i think that it matters to people. it's about your identity and who you are, you know, there's also the stench and i look a lot in the book, like people are grappling with an eye american or and my african-american and how do you deal with success in the larger society and still maintaining my history and identity? and that's really what people, it's at the heart of a lot of people are grappling with from

activists. is how much is that identity and culture to have to give up in order to succeed in the larger society. so i think the symbolism there but also there's deeper questions that i think are really important. >> host: and help people hold on, at least if i'm interpreting your book correctly, hold on to the collective, indicated he the identity, if you have that kind of stable somewhat dense even community of people that included middle-class people, working class people, not the rich but upper-middle-class along with the sort of blue-collar class all in the same neighborhood. that's not an argument that's exclusive to your book. that's a broader argument. how the black unity was fragmented because suddenly you had white flight this week and get blacks leaving the other way. >> guest: absolutely. i think, this was true in my

previous book when i was looking at games but looking at suburbanization and it's interesting, the numbers are smaller because there's fewer people. people are running out of the inner city. >> host: nobody wants to live there, right? that's the argument. that if there's no schools, if there's food insecurity, if there are crummy housing, opportunities. black people don't want to live either. so they leave the first chance they get. account argued is that's what we had to stay and rebuild. if the best and the brightest and most educated, the most responsible, if they all leave, then the neighborhood falls to the same thing of school choice argument. the charter school or the private school or home school, whatever. to that extent once again, this book makes a pretty persuasive argument that whether you intended to or not, that this is

not a good thing because we are taking the best people and letting them go to schools elsewhere. >> guest: i think, yes. i'm a journalist so i'm always careful about the argument but i think there was this detrimental fallout, and the answer is not to just not have, not to have lifted segregation laws and jim crow. obviously, that's not the answer. i think there were though, you know, federal policies that made it attractive for people to move out of the city and into the suburbs and sort of took apart these vibrant city neighborhoods that used to exist that were mixed in, and so on. so it wasn't just individual choices, say like let's all move to the suburbs all of a sudden. this is federal policy choices,

and local policy choices to make this easy for the people who have the money to get out, get out. so i think there were issues but i don't think it wasn't just desegregation. i think there's a lot of other things that went on to facilitate what went wrong. so just as desegregation didn't fix the achievement gap, it helped probably, it also didn't cause all these problems. at it was one of the factors. >> host: i think your book really spotlights that complexity in a real masterful way. talk to me about the supreme court. because that becomes a tempo moment. you mentioned while this was grassroots mobile activism. black parents activating for themselves, and the school. ultimate becomes a supreme court fight the changes the complexion of the nation so to speak. it really ends up seize --

desegregation. >> guest: at it. they got out of our hands. they couldn't find anybody to be their lawyer, in the first place, so they found this guy, teddy gordon who was a really interesting guy. he was very enthusiastic. he saw this as a great opportunity was really compelled by their story. but it really then was taken up by white parents the sort of wanted to send a kid to this goal and they couldn't because of their race. race. so they took it on to the supreme court, and it was a big deal in some ways. i think it sort of was also just kind of a bookend to something was already happening. even when that decision came down, most school districts in the nation weren't doing busing anymore. and so in some ways it was just sort of an official i ban but something that had already been leaning in a lot of ways. >> host: but it did allow for a conversation about the role that race plays in public policy, right? i mean, that still matters now. the same then this is happening

we have a from of action debates where we're still wrestling with this question, the supreme court essentially made it, codified as kind of a trend towar towards sg that race can't be the only factor. it can be a factor but not the only factor. so what are the other factors that can now play into based on the supreme court decision? >> guest: in louisville they been created with parental education. at least a place like louisville, you have come you can look at race and poverty level and they tend to coincide. but there's been, i mean, the big idea now is that we should be able, looking at socioeconomic status and will using that as a basis of integrating schools at the k-12 level and also this is a conversation happening in iran as well, rather than affirmative action, which tends -- happening

in higher education as well. we should be using class instead because there are so few poor students attending elite universities. >> host: you put, you get in with a bunch of poor white kids, couldn't you? >> guest: yet. that was the complaint all along. one of the big complaints all along was that you still had high poverty schools. but i mean, i think it's a compelling case. i think that the people who say that race still matters say that yes, income can capture and can be a proxy for, you know, making sure we also ration -- raised diversity but race diversity matters because people come with different -- they argue enmeshed and they say the experience of race is not, is more than just

about income. so for black americans, for example, the wealth gap i think is much harder to measure. but you may have differing changes in income for example. but wealth is a different matter husband absolutely. sort of income you get, right. which is more drawn along racial lines. >> guest: so i think the argument is that those experiences, that really caught up in the history and the history of discrimination and history of segregation, and the continued racism in this country that those things are not captured by just looking at class. so that's the argument for saying like we still need to do a from of action or assignment to schools based on race. >> host: i understand the

national argument. i understand the argument that we want to -- [inaudible] but was there a vision within the community that sort of neutered the arguments of the liberal elite to say that we need to value diversity? that there's something good in the school about having blacks and whites and latinos in the same place? that may be a wise latina, just because she's a white latino. >> guest: what's interesting is the two families i had focused on, the mom and the daughter in each case can't have different opinions about this, in jackson's case, she had this horrible experience when she was bused in the '70s out to i

guess white working class fairly high poverty neighborhood out in the excerpts of louisville. kids spitting at her. throwing snowballs at rocks. awful experience. they had been really nervous about sending their kids one had to be bused eventually, but had a good experience so she kind of changed her mind. she kind of saw that this is important, my kids and opportunity that they would not have had if they had gone to the school across the street from which was still, despite busing, still a struggling school. and so she, you know, when we talked about it she really said, you know, these opportunities were important. ..

>> guest: so, mean -- >> host: there's no policymaker who would disagree with that, right? both sides would say we want all schools to be' call. >> guest: yeah. easier said than done. >> host: and that's where i want to push you. your book offers such a powerful critique of desegregation, talking about how perhaps it's an oversimplified analysis, what works and doesn't work for that

matter. so talking about what does work, because people are going to pick up this book, and they are going to have strong responses. >> guest: right. >> host: i read a review of your book that said they interpreted your book as saying that too much government is bad, that government intervention is the problem. >> guest: really? interesting. >> host: but it's reasonable to interpret your book that way, right? >> guest: yeah. >> host: one could say a conservative, maybe even a libertarian could say wait a minute, this is what happens when government keeps tinkering. we actually ended up hurting the very people we were trying to help. this is what happens when government gets in the way. >> guest: yeah. that's not necessarily what i was trying to get aa cross. [laughter] >> host: but it's not, it's not an absurd interpretation. >> guest: right, right. i think, you know, the issue with that is it's sort of who's running government and for whose

benefit, i think, and that's what ended up happening with desegregation. the problem was the decisions were being made with, for the most part w a certain constituency in mind and keeping them happy. and that wasn't just the white middle class, by the way. we're trying to keep the black civil rights liberal class who fought for desegregation happy too, and there was definitely that con tin gent. and and louisville fighting for desegregation very intensely all these years as well. >> host: right. >> guest: but in truth of what works, i think, you know, i listen to lots of people every day talking to me about what they think works -- [laughter] yeah s. and, you know with, and i don't have an answer because i've spent a lot of time in really good schools that seem to be working, and there's always something that's, you know, that's problematic with how, you

know, why it's working so well, right? and so i think i it's a really, really hard question to answer. one of the things i'm interested in right now is this effort to do school choice and diversity at the same time which is a new trend. so this is something that charter school operators are getting really interested in, and it's, you know, here in new york city, for example, but also elsewhere. in new orleans they're starting up charter schools where the purpose is to create diverse student bodies. you would think everybody would say wow, you know, school choice and desegregation -- what's the pushback on that? is it the creaming argument? >> guest: it's part that. part of it's just a charter school that people don't want, why don't you work on the schools that we have versus opening a new school that will

take, exactly, cream the students -- >> host: creaming is the idea are the most talented students will be taken off the top and go to the other schools leaving the traditional public schools to have what's left. >> guest: exactly, exactly. so i think that's the main issue. but in one instance i went to a really fascinating school in atlanta where they had build built a mixed-income community. it was a planned community. not only -- it was becoming more diverse, but they had created a school that was in this mixed-income commitment. the issue was that they had to tear down the projects that were there beforehand, and a lot of the people who lived there didn't get to stay. so -- >> host: and that seems to be consistent as well. reform often accompanies dislocation of somebody. so i ran an idea by you. i said, well, a person could

read this as a consequence of the liberal democratic tinkering. i could say we rejected that argument out of hand, at least it's not the argument of your book be. another argument that this is exactly why we need school choice in the most liberal sense possible, and i don't mean political liberal, i mean the sense that we should let as many options flow as possible. people should have access to vouchers, people should be able to go wherever they want to get good access to schools, the charter school movement should expand and become privatized. there's that argument as well. >> guest: right. >> host: would it be fair to interpret your book as why we need more school choice option? >> guest: no, i don't think. partly was what i think, and i think choice is not a bad thing. i think that parents want it, i think kids are, benefit from

different learning environments and parents tend to know best what would be good for their kids. i think one of the issues with school choice is this issue of equity, and if we care about equity and if we care about, you know, providing a good option for every child, there are the kids out there who don't have the parents who will be able to navigate all of those choices. and be i think you found that in new york city as an example where there's, you know, for high school there are hundreds of choices of schools that you can go to, with but you found the large, comprehensive high schools that far just a regular high school, those are really, you know, a lot of those have struggled because they tend to get the kids who don't headache an active choice -- make an active choice, if that makes sense. so just like desegregation, there are problems that come with it that, i think, that need b tock dealt with -- to be dealt with and thought about, and i

think we can look back at desegregation and say, okay, this worked and this didn't work. not necessarily as a critique of school choice and reform ideas that are happening now, but as a way to make them better or at least more thoughtful and at least try to avoid repeating some of the same mistakes. >> host: so basically, i read your entire book, and you still haven't solved -- >> guest: i haven't solved the problems of the book, not yet. maybe my next book. [laughter] >> host: we'll let you do that. >> guest: sounds good. >> host: all right. >> what are you reading this summer? booktv wants to know. >> well, i have a lot of history and biography that i am reading. the book i'm reading currently, and i'm about halfway through, is called "indispensable: when leaders really heart," and it's

a book by a harvard professor, and it's an excellent book on sort of different can leadership styles. it basically has this leadership filtration theory where there are filtered leaders, you know, well known politicians who move up in the ranks, and there are others who are obscure who are going to be unpredictable as a result because they're not as well known. lincoln was such a leader, was an obscure pirg from illinois. -- figure from illinois. when he got to the white house, he was unpredictable and yet, of course, proved to be one of the best be leaders in the united states. that's not always the case, but it's a fascinating theory where he applies this theory to a number of leaders like jefferson and wilson and winston churchill. some books i recently read, "ike's bluff" by evan thomas, and evan thomas is a great

writer and great biographer. his theory in this book is ike eisenhower was not as appreciated as he should have been, that he had method to his hadness, and though he might have seemed to be a bumbler and not in charge, secretly he actually was quite shrewd and very much in charge and knew what he was doing. i have to admit having read the whole book and being open to that theory that, actually, he doesn't mean to, but he kind of prove it is opposite. this book pretty much tells you that eisenhower was often a sick man, very serious illness, heart disease, and was often very disengaged from his own cabinet, delegated a lot of his foreign policy to john foster dulles, his secretary of state. be so it's an interesting book, but i actually think he disproves his own thesis, which is kind of fun when you think about it. another book real important to he because i actually served in

the senate in the years covered by "the last great senate," which a number of senators during what he thinks is a golden age in the senate in the '60s and '70s and some of the '8. characters like ted kennedy and howard baker and jacob javits t and ed muskie and robert c. byrd who got things done, who reached across the aisle, who were willing to break with their own party orthodoxy. kind of bemoaning we don't do that anymore very much, and he documents how much got done with that spirit of collaboration and compromise. great read. 8381 is a fascinating account of history in which he posits that the notions of christian orthodoxy really were composed not by church leaders, but by

leaders of the state where the state directly intervened in convening councils of bush ops and in-- bishops and insisted on certain precepts of orthodoxy, and from that flowed the concept of what constituted heresy. and it was the emperor in 381 who really insisted on that, and it changed the course of history from freeman's point of view, and not always to the better. it kind of silenced dissent, it squelched intellectual ferment in the church about competing theories of theology and led to the persecution of seem who deviated from orthodoxy over the centuries. so it's really a fascinating account of early christian history and the consequences that flowed from the actions of the emperor who ruled constantinople but was a wener

original i finish western originally. be thomas ricks is the hour of one of the best -- the author of one of the best single volumes of our invasion of iraq called "fiasco," brilliant book. this book is a historical book about how generals were made, promoted and dehotted from world war ii to -- demomented from world war ii to the present. his thesis is, essentially, george c. marshall who served as the army chief of staff and joint chiefs of staff under fdr during world war ii removed many, many generals from the battlefield if they weren't up to the job. he insisted on performance. but sometimes he'd reassign them to something else and give them a second chance, but with impunity, he removed people until he found the right perp for the right job -- right person for the right job. and what ricks talks about is that culture of accountability

and responsibility has very much been diluted in subsequent periods such that by vietnam performance seemed to be very small criterion when it came to appraisal of generals, and there was very few be consequences for poor performance and poor outcomes. he pilots general westmoreland who wa csrge as a quintessential example of that, and he argues right up to the present day the same is true and that it's injurious to the performance of the u.s. military and has real implications in terms of u.s. defense and national security policy. definitely a controversial book and one that's very thought provoking and worth reading. another book i've recently read is a book called "the conservative assault on the constitution" by an attorney who practices in front of the supreme court. and be in this book he really

documents this conservative assault on many facets of american life from education to civil rights to personal liberties to corporate law, and his theory is that this is a concerted, ideological assault on liberty and on constitutional principles. and ironically, many of the folks on the conservative side like to hold up the constitution and say we believe in the constitution. this author makes the opposite argument, that they are endangering constitutional liberties and many of the precepts we care about as a country. very good book. then finally, two books i have not yet read but that i'm very excited about. one is "the guns of last light." it is the third book on the trilogy of the world war ii and

the american involvement in it by rick atkinson, a brilliant, human necessary sent writer. his first two volumes were extraordinary. the first was a book on the north africa campaign and the american involvement in it, and the second was the sicily and italy campaigns that went right up until 1945, very brutal part of the war that often gets overlooked. this third volume, "the guns at last light," chronicles the invasion of normandy, d day, right up to the liberation of berlin in 1945. so that's next on my list this summer to read x. then i was just sent a book by a colleague called "the founding rivals." this is a book about the rivalry between madison and monroe. it's sort of a little known piece of virginia history, but actually madison and monroe ran against each other for the united states congress, and the district had been carved to

favor james monroe. madison decided to contest it, and in an upset, he beat james monroe who, of course, was a friend of his, stayed a friend and suck succeeded -- succeeded him as president. so this is quite an interesting book, and it contends that because madison won that election, we got the bill of rights, otherwise maybe we wouldn't have gotten it, because madison was a great champion of that bill of rights. so this election had great consequences. not a well known piece of virginia history, but it's critical and, again, a book i very much look forward to reading this summer. >> let us know what you're reading this summer. at least us @booktv, post us on our facebook page or send us an e-mail at booktv@c-span.org. >> today, a forum looking at the state of the u.s. economy and the financial system. the national press club hosts the event. you can watch it live starting at 9 a.m. eastern here on

c-span2. >> today the good jobs nation coalition hosts a discussion examining civil rights and economic inequality. the event is part of the 50th anniversary of the march on washington. live coverage at 6 p.m. eastern here on c-span2. >> on c-span's end core presentation of "first ladies". >> garfield went to chicago to announce somebody else for president, so, of course, lucretia had no expect nation that over the -- expectation that over the next five months 17,000 people would show up on her property. that many people, obviously, unexpected, uninvited started to cause a lot of damage to the outside of the property. we know that lucretia garfield was a very gracious host to people that were invited if, she

would offer them during the campaign what she called standing refreshment which meant she was very gracious, offered them a cold glass of water or lemonade but conspicuously no chair to sit in was she didn't -- because she didn't want them to overstay their weekend. >> "first ladies" continues tonight at 9 ian on c-span. >> we have this 16-acre piece of land, we have so put something on it, or maybe not. of it was just an open-ended what do we do with it, right in and everyone wanted a say in that. very quickly leaders promised a public process to receive public input to generate a master plan. at the same time that that was going on, however, like i said before, you had larry silverstein, the developer who won the lease to the office space, you had pataki who was running the port authority, and they really believed in the importance of the commercial space that was destroyed. they wanted to make sure that

lower manhattan remained an international financial hub, and they believed that in order for it to remain that reputation, they had to rebuild all of this commercial space. >> the controversy over the rebuilding on the site of the world trade center. elizabeth greenspan on "the battle for ground zero" sunday night at 9 on "after words." part of booktv this weekend on c-span2. >> house financial services committee chairman jeb hensarling outlined the path act, legislation that would change housing finance by eliminating fannie mae and freddie mac. from the george w. bush presidential center in dallas, this is 40 minutes. [applause] >> thank you, mr. secretary, for the kind introduction. i don't know if you can see me, this is a rather large podium. [laughter]

it reminds me of what i frequently tell my washington colleagues, everything's bigger in texas but me. [laughter] if you can't see me, at least you can hear me. anyway, i was delighted to accept the invitation to speak before the bipartisan policy center for a couple of reasons. number one, because of the outstanding work that you have done in the housing arena and, number two, i live about three miles from here, so it took me about seven minutes to get here. anyway, the truth is as a fairly new chairman of standing committee of congress, if the truth be known, i have a number of speaking invitations that come my way. a lot of press that's interested in speaking to me, but i assure you, i do not have to work to remain humble. but because i have a lot of speaking invitations, i accept a

lot of them. and at this home about three miles are here, about two months ago i was working on one of those speeches after dinner, and my wife -- who helps keep me humble -- comes into my study and says, okay, in washington you may be mr. chairman, but in dallas you're mr. dishwasher, and they're not getting any cleaner. [laughter] so i took my wife's subtle him, i dropped the speech, i went into the kitchen, i began to work on the dishes. a few minutes later the phone rang. she picked it up, she comes into the kitchen and says, okay, mr. big shot, "wall street journal" on the phone. so i thought to myself, i wonder how they got my home number, but i guess i'd rather be talking about quantitative easing than washing the dinner's dishes. so i go, i pick up the phone and said, yeah, this is jeb. on the other end of the line i hear, this is chuck with "the wall street journal." did you know for just $29.95 a

month you two can -- [laughter] so i assure you, i have -- that will, indeed, keep you humble. something else that will keep you humble is trying to reform our nation's housing finance system. something that i believe is vital to every homeowner, current and would be vital to every taxpayer and vital to the future of our economy. now, i know if you didn't understand that, you most likely would not be many this room today. so, again, i want to thank the bipartisan center for the work that it has done on housing reform. it's very important be work. and i especially want to recognize the outlanding leadership and -- outstanding leadership of people like secretary martinez and secretary cisneros, the latter secretary

being a fellow texas aggie and as i reminded him as a temporary resident this san antonio in the early '80s, my former mayor as well. but i'd like to thank both of you gentleman for continuing in this facet of public service, and i thank you for the solutions you promote for our nation's housing challenges. and i also want to thank the center for the work that they do in promoting a respect offul and constructive -- respectful dialogue. in washington it occasionally sheds a whole lot more heat than light. i hope that today we have a little bit more light, and i'm pleased to be a part of that dialogue today. as some of you may know, i have focused a good portion of my public service career devoted to the issue of housing. i believe, as you believe, that home ownership is an especially

cherished american tradition, and it's a tradition that i think we all believe is far more meaningful than landscaped lots, picket fences or granite countertops. homeownership is, indeed, a quality that combines families together, builds financial security and strengthens our community. but as cherished of an institution as it may be, home ownership did not in and of itself constitute the american dream. it never has. i think most of us believe that the american dream is something far, far more profound. quite simply, the right to use our god given talents to control our own destinies to the end that our children might have even greater opportunities, greater abundance and greater freedoms than we have ever enjoyed. and it's this understanding of the american dream that sevens as my -- that sevens as my

personal compass in this debate. before we can use any cam compass before we can chart a path for the future, we miss must have a thorough understanding of where we have been and where we find ourselves today. for my work on the oversight panel on the t.a.r.p. program, it became clear to me that the great tragedy was not that washington failed to prevented the crisis, but instead that washington helped lead us into it. and we were led into it based upon a single good intention be, namely that every american family should own a home. good intentions do not necessarily lead to good public policy. washington helped lead us into this crisis in three principle ways. first, federal policies were designed to expand home ownership in an off-budget fashion by encouraging lending to people who bought homes that they simply could not afford to keep. sadly, a federal government which lees beyond its -- lives

beyond its means in turn tragically encouraged families to do likewise. second, washington protected fannie mae and freddie mac which privatized their profits and clearly socialized their losses. and lastly, the federal reserve maintained a highly accommodative monetary policy that dramatically lowered interest rates, kept them low and ip facilitated the housing -- inflated the housing bubble. now, the fed set the stage for a wave of mortgage borrowing by keaching credit -- keeping credit conditions too loose, too long. the fed began lowering interest rates in early 2001 to cushion the economic fallout. on an inflation-adjusted basis or a real basis, the fed dropped interest rates from 4% in late 2000 to a -1.5% in 2003. that decision unleashed a wave of cheap credit on a housing market that was already

experiencing a boom cycle. next, the federal government has more decades attempted to spur lending and borrowing to expand home ownership without direct taxpayer spending, in other words, without annual congressional approval. be i believe and i know there are those who disagree, that one of the more damaging initiatives has been the community reinvestment act which is clearly upside taken with good -- undertaken with good intentions but i feel is in need of repeal. proponents have maintained that only a small portion of subprime mortgage originations were represented to the cra. however, i believe that misses a more fundamental point. though they may be small in volume, cra loan mandates remain large in precedent. they inherently require lending institutions to woond their traditional underwriting standards to comply with this government mandate. as cra implicitly put the government's good housekeeping seal of approval on low quality

loans. finally, fannie mae and freddie mac, private companies awarded monopoly powers by congress in exchange for meeting certain affordable housing goals. we all know they exploited those congressionally-granted charters to borrow at discounted rates and ultimately dominated our secondary mortgage market. they wildly inflated their balance sheets and personally enriched their executives via implicit, now we all know explicit government backing. and did i mention the cooked books that allowed the politically-connected executives to make off like bandits with what their regulator described as, quote, ill-gotten bonuses in the hundreds of millions of dollars, unquote. given their prominence in the market, investors and underwriters came to believe that if fannie and freddie touched a loan, it was safe, sound, secure and most importantly, sanctioned by the government. more than 70% of subprime mortgages that helped lead to the crisis were backed by

fannie, freddie, fha and other taxpayer-backed programs. if you have to put your finger on the root cause of the crisis, this is it. despite the inherent dangers in such transactions, taanny and freddie's congressional supporters kept encouraging them to, quote, roll the dice a little bit more, unquote. well, they did, the, and the result is the worst financial crisis since the great depression. the ultimate consequence of these policies was that the average american family watched helplessly as their net wealth declined by nearly $50,000, wiping out almost two decades of financial progress. ladies and gentlemen, this is where we have been, and five years later where do we find ourselves today? today we all know that there are single moms throughout our economy who are having to work even harder than before simply to put food on the table, to put a roof over their families' heads. that's unconscionable.

taxpayers have been forced to pay nearly $200 billion for the failed gses. that's unimaginable. today taxpayers remain on the hook for more than $5 trillion, trillion with a t, in mortgage guarantees, roughly one-third the size of our economy. that's unfathomable. today the federal government has a virtual monopoly on the housing finance system. that's unwise. today, due to the dodd-frank act, washington elites decide who can qualify for a mortgage, putting home ownership out of reach for millions of american families. that's unfair. the american people deserve a path forward. they deserve a path to a housing system that is sustainable, fair and preserves the american dream. they deserve a system that protects current and future homeowners so that every american who works hard, who plays by the rules can have opportunities and choices to buy homes that they can actually

afford to keep. they deserve a system that protects hard working taxpayers so they never again have to bail out corrupted financial institutions like fannie mae and freddie mac. and they deserve a system that finally breaks the destructive boom-bust housing cycles that have hurt so many working families and brought our economy to its knees. that's why the house financial services committee recently approved h.r. 2767, the path act, whose acronym stands for protecting american taxpayers and homeowners. i believe the path act is the path forward. the act is the principal work of scott garrett of new jersey with randy gnawing bauer of texas and shelley moore capito of west virginia serving as co-authors. i commend them all in bringing this landmark legislation to our committee. now, at its core the housing market is not fundamentally different from the market for any other asset.

housing is not immune to the economic laws of supply and demand or risk and reward. thus, the path act principally relies upon private capital and market discipline. it includes four fundamental goals essential to the development of any competitive free market. first, the role of government is clearly defined and limited. second, artificial barriers to private capital are removed to attract investment and encourage innovation. third, market participants are given clear, transparent and enforceable rules for transactions to foster competition and restore market discipline. lastly, consumers are afforded informed choices in determining which mortgage product best suit their needs. the act specifically does the following: it ends the costly fannie and freddie bailout, it protects the restores the fha by defining its higgs, it increases mortgage competition, enhances transparency and maximizes

consumer choice and, again, breaks down barriers for private investment capital. many believe, as i do, that the first step in creating a sustainable housing finance system is to end the costly bailout of fannie and freddie and permanently move away from a system where the fate of our economy depends upon their success or their failure. the path act ends the bailout and gradually winds down both failed companies over a five to seven-year time frame. now, much of this debate has centered around the so-called need to have gses or their equivalent in our housing finance system. first, i think we should recognize that the u.s. is practically alone in the modern industrialized world in having government-sponsored enterprises directly guarantee mortgage securities. we are practically alone in our level of direct government subsidy and intervention in our housing markets. we were also practically alone

in the world in the level of you are the hoyle in our housing markets -- turmoil in our housing markets as measured by foreclosures and delinquencies. by almost any measure, fannie and freddie have not propelled our nation to housing finance nirvana. when compared to other modern industrialized nations whether we look at rates of home ownership or spreads between mortgage interest rates and southern debt, the u.s. can typically be found either in the middle or the bottom of the pack. however, there is one category where the u.s. has clearly led, foreclosure rates. only in america can you find a government that subsidizes housing more so that we, the people, can get less. but we don't have to look overseas to see a well functioning housing market without government-sponsored enterprises. indeed, we don't have to look any further than our own jumbo market that has successfully operated without them. prior to the housing bust, the

judgement poe market was approximately 20% of our total housing market. there was capital, liquidity, competition, the 30-year fixed mortgage, consumer choice and innovation all right here in america. and all of that was delivered for about 7-25 basis points or one-quarter of 1% interest differential from what the gses offered. i would offer, a modest amount to avoid taxpayer bailouts, government control and economic catastrophe. and i think it's also important to note that whatever modest interest rate benefit the gses delivered to home buyers, to some extempt it was clearly offset by the inflation of housing principal for those very same home buyers. in other words, it is not self-evident that the home buyer was any better off. and at the end of the day, the best arguments i have heard to perpetuate the gses are the following: one, they were standard setters throughout the

underwriting purchase requirements, they served as loan aggregators for smaller lenders by purchasing loans through their cash window and provided a conduit to access mortgage investors through the issuance of mortgage-backed securities. these are, indeed, functions well worth preserving in some form throughout a new system. thus, the path act ushers in a new system of housing finance that separates out these functions, providing clear and transparent disclosure of mortgage data, giving certainty to contracts and their enforce blght, utilizing the knowledge and networks of the federal home loan bank system and creating an open access utility for mortgage-backed security issuance that is decoupled from the holding of long-term mortgage risk. to insure a smooth transition to the new system, the path act implements several reforms to fannie and freddie in the interim. these reforms include repealing their misguided, washington-created affordable housing goals that helped precipitate the crisis.

shrinking their portfolios of mortgage-backed securities and other assets and eliminating the goth-granted competitive advantages over the private sector. the path act also reforms the fha. you cannot have true housing reform without fha reform. otherwise you are simply squeezing the balloon on one side only to have it bulge out on another. regrettably today, the fha is not only broke, it is bailout broke. and over time fha has experienced severe mission creep, and i would argue the two phenomena are directly related. instead of helping those that it was intended, today fha insures mortgages for million fairs and homes valued as high as $729-u750. that's a mansion in most of the 5th congressional district of texas and far beyond the reach of those truly earning low and moderate incomes. fha's government privileges give it advantages that muscle out

private competition. so it's no wonder that fha today controls 57% of the mortgage insurance market. it has gained this advantage advantage over competitors by using many of the same practices employed by subprime lenders; small down payments, low credit scores, cheap, up-front pricing and encouraging the purchase of increasingly pricey homes. that's why today many would argue that fha has more in common with the now-defunct countrywide than with the fha of years ago. the path act returns fha to its traditional mission of helping first-time home buyers and low and moderate income families. it further helps end sure fha solvency. rest assured that in times of serious economic downturns under the path act, the fha will be able to insure loans to any borrower. this means that the path act would preserve the fha's

twisting cowntsz cyclical role. promote stability in the housing market and insure middle income families can still buy homes. the path act also allows for a new but old method for banks to finance mortgage lending by creating a regulatory framework for covered bonds financing. i say new but old to because covered bonds have existed and have been successfully used in europe for more than 200 years where they offer a third pathway to mortgage financing beyond traditional portfolio lending and securitization. but when it comes to housing finance, many in washington fight the new and defend the old failed status quo that, again, gave us a government-run monopoly, taxpayer bailouts, economic crisis and delivered only mediocre home ownership rates. the detractors of the path act have claimed that it will

eliminate the 30-year fixed rate mortgage. that, perhaps, is the bigst myth about the path -- biggest myth about the path act. in fact, section 213 of the to path act specifically states that, quote, the fha shall provide among other mortgage insurance products for the availability of a 30-year fixed rate mortgage, unquote. now, the legislation doesn't say that fha can provide, may provide or should provide, but instead shall provide. and i would note that section 213 of the act would be the first time that the fha has ever been specifically required to offer a 30-year fixed rate insurance product which should conclusively refute the argument regarding the 30-year fixed rate mortgage. some people have stated that the very existence of the 0-year fixed rate mortgage is due to the fha. if so, the path act goes to great lengths to strengthen it for future generations by granting it meaningful autonomy

from hud, properly defining its higgs, helping make it solvent and giving it more flexibility to manage its books. 0-year fixed rate mortgages existed before the financial crisis without a government guarantee, and they are being made today without a government guarantee. as "the washington post" recently editorialized, quote: proponents of the path act argue that a permanent government backing will consequently end the 30-year fixed rate mortgage. an answer to that, some 30-year fixed rate loans already exist without government help, unquote. that was "the washington post," not national review. be home boyiers should have the opportunity to -- buyers should have the opportunity to acquire a 30-year fixed rate mortgage. but washington shouldn't steer people into it, but instead should insure that our citizens have informed choices about an array of mortgage products that can meet their needs.

as ed demarco, the head of the federal housing finance agency recently stated, quote: one thing i would say about 30-year mortgages, it is not necessarily the best mortgage product for a home buyer, especially a first first-time home buyer. if you look at statistics and see that the first-time home buyers tend to own their home for four years or five years, it may not be the best for their circumstances if they buy that house with that kind of timeline. there may be a different mortgage product in which they can build equity at a faster rate than a 30-year fixed rate mortgage, unquote. even president obama has acknowledged that shorter duration loans hold advantages for many borrowers such as when he proposed last year an expanded loan refinance program borrowers, quote: must agree to finance into a loan with no more than a 20-year term, unquote. many americans who seek to own a home find themselves selling their property before they build

some, if any, equity in that property. leaving their situation akin to being a renter who pays thousands in closing costs, agrees to do the maintenance and then has to pay the property taxes. there is no one size fits all mortgage in america. next, some opponents of the path act claim that sufficient private sector capital simply does not exist to fill a postgovernment guarantee void. that begs several questions. number one, why are equity markets two and a half times the size of our mortgage markets, and yet they exist without any guarantee, government or otherwise? and just how much capital is sufficient for housing finance? i don't know the answer to the question, and i suspect no one in this audience does either. but what i do know is that whatever that number is, it must be sustainable. that's the key concept.

now, i also remind us all capital has alternative uses. every dollar that washington artificially incents into mortgage finance is a dollar that can no longer be used to promote matthew to haves for our children or promote our economy's manufacturing sector to give them jobs once they graduate. now, another important factor to remember about financing the u.s. mortgage market is that investors, property and casualty life insurance, mutual funds and reality investment trusts held almost 50% of the market share for whole mortgages and mortgage-backed securities by 2010. for these kind of investor, the u.s. residential market is clearly an ideal investment opportunity given their need for long-term investments. as housing expert professor quiet -- [inaudible] of uc berkeley has explained, winding down the gses should

be accomplished without any major stress in the flow of funds for u.s. mortgages. and if we look abroad, we see another modern, industrialized nations that have avoided our disastrous gse experience. private capital is ready, willing and able to fund the mortgage market. now, another faulty attack made against the path act is it will be harder for middle income families to buy homes. no, that distinction belongs to the dodd-frank act, our current law. chief economist mark zandi of moody analytics recently testified before our committee that one single dodd-frank rule, qrm, currently in the pipeline, could increase mortgage interest rates one to four percentage points. so core logic, a company that you know, analyzes financial information has said a about half of the mortgage loans made today would not qualify with dodd-frank rules that go into be

effect this january. in other words, sickle -- single handedly the dodd-frank act could cut the number of mortgages in half and double the cost of those that remain. it's that bad. perhaps that's why the national association of home builders has warned that dodd-frank, quote: could grind the housing finance system to a halt. right now because of the dodd-frank act, has more control over who can buy a home than your local banker. the path act greatses these devastating rules -- addresses these devastating rules head on, allowing bankers to lend, realtors to sell and home buyers to buy. the path act entirely eliminates the qualified residential mortgage issue by striking dodd-frank's credit risk retention requirements and prohibiting federal banking agencies from requiring risk retention or premium capture reserve accounts. path act also eliminates the troubling ability to pay liability exposure for lenders

for the mortgages that they are willing to hold in their own portfolio or securitize through the platform created by the path act. lastly, i kno that some have claimed that somehow the path act is ideological, a word that you hear more often in washington. but it seems to me that those who would defend a failed status quo of taxpayer bailouts, economic crisis, and again, mediocre home home ownership ra, perhaps these are the ones that are being ideological. instead, the path act is sustainable, sustainable for homeowners so they can buy homes they can actually afford to keep, sustainable for taxpayers so they no longer have to bail out finance, our housing finance system again. sustainable for our economy so that we avoid the seemingly never ending cycle of boom/bust in our housing market. again, perhaps in washington that's ideological, but in the 5th congressional district of

texas, i think it's known as common sense. i've spent a lot of time reasoning to my -- listening to my constituents and their common sense. i recently heard from diane in dallas who wrote me, quote: why should those of us who did the responsible thing and purchase homes we could afford have to pay the freight for those who bought larger, more expensive homes they couldn't afford? i heard from steve in is jacksonville, texas. if it were a mom and pop business that did with what fannie mae and freddie mac did, it would have been shut down for poor business practices and even jailed. ..

>> i could not be more gratified that last week the president finally added his voice to this important debate. and although i heard few specifics, i welcome him to debate. i'm encouraged by this and i recognize that he is in sensible to solution. other important voices in this debate, besides your own or those of senator corker of tennessee and senator warner of virginia. i commend them for their leadership. as someone who's worked for years and years on the complicated and contentious issue of housing reform, i salute anyone who will roll up their sleeves and produce, not just rhetoric, but an actual plan. and even today more and more voices are being heard in this debate and this is encouraging.

this is good. i stand ready to listen to all and to negotiate in good faith with all. and i do this with an open mind. i do not do it with an empty mind. us, i remain skeptical and fearful, a an approach that does not end the guarantee in the second mortgage market. if at the end of the day taxpayers are still on the hook, then i fear all we have done is put fannie and freddie in the federal witness protection broke or them, giving them cosmetic surgery or new identity, and unleashed them on an unsuspecting public. when government provides guarantees, it means investors to buy mortgages and mortgage-backed securities will be protected against loss. they won't be overly concerned about the quality of the mortgages. either way they will get paid. and not unlike fannie and freddie, it can very well perpetuate a system where wall street investors simply offload the risk on main street

taxpayers. such a system, i fear, can guarantee that america will face another round of boom, bust, and family. ideas that set a new bureaucracy that will approve all the players and housing finance system. i fear the prospect of powerful bureaucrats picking winners and losers. and that system, attacks. no, always comes out the loser. and cronyism as a way of rearing its ugly head. i remain skeptical of ideas to create a new federal mortgage insurance fund. if there's one thing that we've learned about government and interest funds is that the government you cannot or will not properly price risk. you name it, whether it's the national flood insurance program which is underwater, pun intended, the pension benefit guaranty program or even the deposit insurance fund, from time to time, the government has flat gotten it wrong leaving taxpayers on the hook.

i'll conclude with just these last few thoughts. is our nation charts a path on the -- some ocr choices for working american families are between house and no house. i disagree. to have a sustained housing policy, one comic in what people buy homes they can afford to keep. the choice in many respects is between house and morehouse. our generation perpetuate a system that demands more house today only to ensure that our children are confined to less house tomorrow? today system of boom bust and bella is retarding economic growth and helping fuel what all acknowledge is an unsustainable level. of national debt. our spending driven debt crisis is the greatest existential threat facing our nation today. we are borrowing 31 cents on the dollar, much of it from china,

and sending the bill to our children. children born today are burdened with the debt of more than $52,000 they had nothing to do with creating. our national debt stands at roughly $145,000 per household. for a lot of people i represent in the fifth congressional district of texas, that will ever be a -- that's more than they'lthey will ever a mass in s in their entire lifetime. david cody, one of the presidents own appointees to simpson-bowles commission, also the ceo of honeywell said quote the seeds of the next recession have already been planted. the debt burden accumulated over the next 10 years will sink us. the former chairman of the joint chiefs of staff, admiral mike mullen said quote the single biggest threat to our national security is our debt. i would also offer the single biggest threat to our now national housing aspirations, too, is our debt. so if you have ever attended one

of our financial services committee hearings on capitol hill, and if you have an uncertain hope one day you will, you will also see that we run a continuous real-time display of the national debt clock. it serves as a constant and sobering reminder of the very serious and very dangerous threat that faces our nation. a threat that looms large over this debate and should loom large over every debate in the future. and i would also say if we think about a housing program for working americans, we've got to remember that the best housing program, at the end of the day is not a subsidy cannot guarantee, not an interest deduction, not even a tax credit. it's a job. a job that leads to a rewarding career in a dynamic, growing economy. which there's never been a greater or more successful housing program ever devised by the minds of mankind than the

american free enterprise system. this is what we should work to strengthen. we should also never forget that at the dawn of america's history it was another crony run government sponsored enterprise that needed a bailout, namely the east india tea company. that sparked a revolution gave birth to a nation teeming with individuals who decided to take control of their own destinies. these pages risked their lives, fortune and their sacred honor to ensure that their children would have something better than a phrase they risked all for the american dream. that compass that should guide us all. today in the aftermath, destruction government unsustainable housing finance system we find ourselves again at another moment in history. it is a known issue and went to make a fundamental choice. one that will shape the future of our nation and those who proudly call america home. that's why this debate matters.

when it comes down to is not a debate about basis for fixed term loans, it's about freedom. it's about opportunity. it's about taking back control of your lives and your destinies, including many here today, you who have careers in housing finance, to have those careers without the interference of big government. i hope we can all agree, it's time for a new path. it's time for our generation to preserve for our children the american dream, including that most important dream of homeownership. i welcome your voice and i thank you for the opportunity to speak yoto you today. thank you. [applause] >> mr. chairman, thank you so much for very, very thoughtful remarks. i know we're running close to our timeframe for lunch, so i will throw a question ask you and maybe a second one, but i

think one of the things everyone in this room would love to know is what is your assessment of a timetable by which that which we also which is the desire to see this reform take place could happen? >> welcome you didn't say they would be easy questions. the house majority leader is anxious to bring the path act to the floor. again, i have an open mind. we are speaking to many people now about some revisions and improvements that could be made to that act before goes to the floor. and as i look in this audience i see the a few of those people that we're talking with, as we speak today. i do not have a close personal working relationship with senator harry reid, so i'm little bit ignorant on what the timetable may be over there. but in my discussions with the senate banking chairman tim johnson and with ranking member mike crapo, i am cautiously

optimistic that they, too, may move some legislation in the fall. and i believe clearly and since the majority of house and the financial service committee that the path act is the path forward, but the voters spoke in the last election. they are is divided government. and as i said before, that's why god made conference committees and i wish to get the path act to a conference committee. >> let me say that as someone who's in the senate for a better part of the term, i only saw one or two conference committee the entire time i was there. that would be welcome news to those who study civics in our schools that actually we could come together. and so i guess that would be the follow-up question but do you think we could end up in a conference situation? do you think the senate would agree to a conference, and with the house leadership agree to a conference? >> well, to the extent i anything to say about it, we would go to conference.

you know, i've got a nine year-old son, and 11 euros and daughter who are learning about civics, and i hope it's not relegated to myth, these ideas of having an actual conference committee. so i would remain cautiously optimistic. again, i'm more encouraged now that the president has waited. and i was very encouraged when the presidents administration initially put out there housing white paper. i became discouraged when it was allowed to gather dust for roughly two and a half years. had a number of conversation with secretary geithner. i was convinced of wanting to move forward, white never happen. i don't have a good clear picture, but again i'm encouraged the president has weighed in. he seemingly wants to get something done, and optionally on his housing white paper to great extent encompasses much of what the path act has. i listened to his comments

carefully the other day. is wind down for been effort despite summer to what we see in the path act, having said that i frequently in my career found myself agreeing with 80% of what the president says. i just find myself disagreeing with about 80% of what he does. spent so there's a difference between the two. one last question. now that we've come to that. so there a number things in your path act proposal that you really with dodd-frank. do you think as a result of this process that we might see some dodd-frank reform? >> well, i'm encouraged. i mean, it's clear that as a conservative republican i've not been a fan of dodd-frank, although i certainly have incredible, a great amount of respect for its author, chairman

frank, who clearly is one of, one of the smarter people i've met. doesn't mean he is right or. i must admit, i believe he didn't have to ask my colleagues on the other side of the aisle as he said in washington. i think somehow the more religious adherence to the brand and perhaps unnamed authors of the act have. personally, when you look at what the regulars have done with u.n., what is contemplated by qrm, i think that is unsustainable. i do not know how you could also may sustain a housing finance market. if you cut the number of mortgages in half and double the price on the others, which clearly could be the outcome, perhaps the worst case scenario. so i think there are a number of democrats on house financial services committee, although they are committed to fundamentals of dodd-frank, are

certainly looking for room for improvements. so you know, i've been in congress for a few years. if you're not an optimist is really not the job for you. so i preferred to remain optimistic about these matters. >> thank you for your generosity with your time, and i hope you enjoyed the rest of the time in your home district, which i know you prefer to washington but we look for to have me back there. we look forward to your work ahead. thank you. [applause] >> today, the good job nation coalition hosted a discussion examining civil rights and economic inequality the event is part of the 50th anniversary of the march on washington. live coverage at 6 p.m. eastern here on c-span2.

the six democratic candidates in the newark city mayoral race will debate today. the event will include former representative anthony weiner. we'll bring you a live preview at 6 p.m. eastern and the debate at seven on c-span. >> taking up you live now to downtown washington, d.c. for the national press club who is hosting the state discussion, a discussion about the state of economy. we have at the podium a number of speakers including former chairman sheila bair and ceo mohamed el-erian. >> you can learn more about this at www.breast outdoor. more four years after the recession officially ended the economy is stuck in second gear. gross domestic product has grown less than 2% for three consecutive quarter. that's below the average growth rate of 2% for the duration of the recovery and well below the 3% rate the economy has

historically grown. incomes are stagnant and unemployment remains high at 7.7.4%. at and workers have dropped out of the workforce because they're discouraged or are working part-time for economic reasons and the unemployment rate stands at 14%. while the housing market is improving, home prices remain near levels last seen in the spring of 2004. so how much longer will our economy remain stuck in the mud? nearly five years since the financial crisis looks at the state of the banking system now. and what can be done to pull america out of this tepid growth? were honored to be joined today by three and credible experts on the panel. mohamed el-erian, ceo and company chief investment officer of pacific investment management company with nearly $2 trillion in assets under management. sheila bair, senior advisor to the future protests, chair of the systemic risk council and former chair of the federal deposit insurance corporation federal deposit insurance corporation. and john taylor, professor of

economics at stanford university and senior fellow at the hoover institution. he is well-known and economic policy circles. taylor said as undersecretary of the treasury for international affairs for the george w. bush of administration and was also part of the president's council of economic advisers. thanks so much for being here today, and special thanks to mohamed el-erian and professor tiefer flying all the way from california. mohamed, i want to pick off again with you because you can go -- your outlook for the economy has been dead on. how much longer is this economy going to remain growing an average of 2% per year? >> let me take you back to 2009 when the new normal concept them out, and the idea was to find a signal that they would not be your traditional cyclical

recovery. that and less mindsets in washington changed and unless there was a better understanding of the underlying dynamics, we risk getting stuck in a period of unusually sluggish growth, persistently high unemployment, and that's what has materialized. so why? so go back to the concept, and i love, the economy is stuck in second gear. let me push this analogy a little bit. it's not just stuck in second gear. is being driven on a pretty foggy road. there's some good news. we are doing better than others. so europe was in reverse and just went to neutral. japan was in neutral for a long time and it is just gotten into first year. so we are doing better than others. that's another bit of good news, there's a reason why this economy needs to be stuck in second gear. this car is capable of being driven and third, fourth, or even fifth year. and last 50 or is an economy that is running above potential

in order to catch up. so the question is why. think, and go to take you to a manual transmission. i know that's hard for the country, but the analogy works better. manual transmission in order to shift gears you need to press the clutch. you can try doing it otherwise you risk breaking. the minute you start pressing the clutch, you go from what is technologically possible to what's politically feasible. and the problem has been that's not technologically possible to get the car entered a fourth do. it's just politically not feasible. so couple of things have happened. one is we attempt to shifted -- gets frustrated you only need to look at some pretty good initiatives that have gone to congress and have been almost dead on arrival. the second, if another driver which is the fed which has been trying to force the change but they have been able to do it

using proper instruments. using perfect instrument. and that's why the benefits have been less than what was expected, and the costs and risks to mr. bernanke's phrase, or the clever damage, has become a concern. >> where to go for mayor? >> let me tell you what should happen and what's likely to have. it's important to make a difference. what should happen is we should have a political coming together, what we call the sputnik moment on the four things that this economy needs. and the problem is the political debate is very, very bobbled right now. we need structural reform. we need more balance aggregate demand. we need to deal with some debt overhang, some persistent behavior that undermines this economy. and we need some really good micro elements that have to do with education system, labor

retooling, labor return. that's a we need to do. it's not hard to get political consensus. until we get there we are stuck at 2%, a and the longer we're stuck at 2%, the more potential growth, which you put at 3%, i would put that to put 5%, but the more potential growth is coming down because the problem is structurally embedded in this economy. look at long-term unemployment. >> the economy has changed a lot since the recession. companies are doing more with less. workers have been displaced by technology. many workers don't possess the necessary skills. the veil of job openings. are we looking at permanent hire unemployed still for some time to come? >> no, i don't think we are. i think the problem with the unemployment rate remaining high and with job growth hardly keeping up with the population, and with the very low growth numbers you were mentioning, are things that can change. depends very much on the policy.

to me it's not so much second year, although i like the analogy and away mohamed followed a. it's more of you've got this big heavyweight in the back of the car. it's dragging, slowing the economy down. i think a lot of it is the policy. you can look back in previous expansions, say the expansion of the 1980s, with amazing comparison. deep recession early 80s, growth was 5.2%, 5.2% per year over the same span of time it's been 2.2% in this recovery. is just dramatic. so i think you can learn from history about what to do with the changes. >> so you don't think we're going to remain permit higher unemployment. we need higher gdp -- >> they're certainly a danger we will but i think largely depends on policy. one of the things that could lead us in this direction is kind of a complacency. the very attitude that well, we can be used to unemployment rate at 6.5, seven, 715%.

way back when and when without unemployment number was 4% of the time where the council economic advisers, greenspan was the chairman, i was on the stack and we said well, because the demographics let's call it 4.9 the normal rate. and use it as incredibly pessimistic to say it 4.9. we can do better -- now we're talking maybe 6.5. it's this taking this discouraging performance and making it what we are expect in the future. and there's a danger. >> i agree with that and i think complacency, we can do better. we can do a lot better with the appropriate policies. but there is i think political dysfunction and, this is the best we can do because otherwise if we can do better, there's a shortcoming. i think, you know, i would agree with mohamed's list. there are a lot of frictions in the system based on the are

inefficient tax cut, getting rid of the loopholes, bringing the topic and just for the personal also for the corporate. i've advocated infrastructure spinnaker retraining workforce. there are things we need to do. we need to focus on account country more competitive and producing real things, goods and services that others want to buy. >> is it safe to say politics is the greatest impediment to growth? and stark discriminate, on wednesday compromise within congress wrapped between congress and the administration, will the economy be held back? >> yes. [laughter] essentially. yes, i think that is the biggest obstacle. the second one is the mindset. we grew up believing that finance was the next level of capitalism. that somebody goes to agriculture, manufacturing and then you go to services, and if you're really lucky you get to finance. the description of my industry

changes from financial service which is this notion these are the real economy to finance, this notion that you are stand alone. we need to realize and ligh likt we don't have a financial service industry that supports the economy enough. so there's also a mindset. and i agree with john and with sheila, as we had to go back to genuine drivers of growth instead of this love affair that we had with leverage and debt and how but because that's going to just put us into another crisis down the road. >> coming back to the present situation. mohammad, income inequality is growing. middle-class is being squeezed, lower income households are struggling. meanwhile, the 1% is doing just fine. they are singer stockport was right. we haven't seen protest industries like you but what's the risk of the social fabric of america that's beginning to fray? >> so it is fraying and his frame because we started out with social inequality and that

is getting worse. the reason it's getting worse is because of the policies that we are pursuing to try and restart our economy. if the fed is the only policy maker in play today in washington, not by choice but by necessity because others are paralyzed, the fed can only act using indirect policies. so it cannot invest in infrastructure. it cannot change the tax code. it has to convince people to do things. how does it convince people to do things? to go through asset markers but the idea is very simple. you make asset markets artificially high. why? that's because the wealth effect, people feel better. maybe they'll go spend more. that triggers animal spirits. may become as we'll invest more, and you hope, you hope that this pulls up the fundamental. but who owns assets? who owns financial assets? the better off. so you have this irony in using an imperfect policy am not by

choice, but by necessity, you end up making income in equality even worse. >> ms. bair, to believe the federal reserve policies are contributing to the widening income? speak with yesterday. i don't think that's intention of it. intention should be the opposite, that it is, it's resulted in financial aspiration. and that benefits those who are the wealthy folks. we haven't seen the jobs that are coming back, are lower paying jobs. they are not quality job. we'll wage income is gone opposite. that's majority people in this country and again they don't own the financial aspects that are been inflated. so yes, it's not intention. it's the opposite i think they wanted to great jobs but it's not happening. >> was the biggest risk to the economy right now? >> i think the unsustainability of the course that we are on. we are very tepid growth. and again way too much time to go back to the past.

it's just not sustainable. unita we'll wage growth. in the production of real goods and services that others will want to buy. just fueling growth increasing levels of leverage will eventually collapse. and i'm afraid that with cheap interest rates that's what is divided is get people to borrow and spend it into it's just not sustainable. and so many people, i'm in the process of writing a book on the crisis and i think anything a lot of families to get a sense of how young people you do this crisis. there's a lot of people out there still on the edge. they are just by making it back by fear making maybe two-thirds what used to make. we get into another downturn i just don't know what will happen speak speaking of the fed, there's a sense of that the fed is going to roll back or pull back on its bond purchases. this fall. we have seen bond yields rise, translating into higher interest rates, particularly mortgage rates. how much higher d.c. bond yields

and their core interest rates rising? will be enough to choke off growth even more? >> so, bond yields are rising because financial markets became different for economist i think that is something that has to be understood. economists like to look at the journey. and are very rational that the journey can take one step here, one step your, one step you. financial markets look at terminal values, look at the destination. and ask themselves what does the destination look like, and can i get the first? if you get to the right destination first and that's where you want to be. so the minute that the fed started talking about tapering, which was our member that they very well, may 22nd, then it got concern on june 19, you saw interest rates take off. we have now priced in as a market a significant pay rate start as early as september. that has gotten impact we're seeing in the housing market we can. house builders have gotten hit really hard on equity market,

and we've seen the effect of the. the fed is trying to play defense. the first attempt to play defense was to claw back tapering to a second attempt, which we should all stay to do is it's going to use its second instrument to try to compensate for the effect of the first. what is that second instrument? experimental forward guidance. so what you're going to sing it is the fed attempting again because they have to convince people to do things, the use of aggressive forward guidance in order to limit the impact of high interest rates. the one thing to remember, and this is really important, is that we're any good with the fed, not by choice but by necessity to is using experimental policy that have not been tested it's like a doctor that tj medication because he or she has to do so that has been clinically tested. and when that medication doesn't work well, i'll give you a bit

more of the if it's not any better i get a bit more of it. that's why this notion of side effects is so important that's why the fed is so concerned about the. >> let's talk about the fed's monetary policy. ms. bair, are you with the fed policy have gone on for too long? how we created new source of financial instability? >> well yes, i am but i think i would also say the longer we're in the harder it is to get out. i think you need to get out. they need to get out of very, very gradual, slow basis. i think at the end of 20 t 2012e studies showed they were 90% of net new issuance of government-backed securities. so that is a huge presence in the market say okay, we're over with now, so i would signal that his tapering would be on a very, very long time frame. and hopefully that would be combined with more, better leadership with our elected officials on fiscal policy. that's what we need to get the economy going.

was not just give some short-term sugar high but some long-term economic benefit a good paying jobs in the process. then i think i could work but i think yes, it's been way too long but because they've been way too long they need to get out very, very slowly. >> professor ted, you point the taylor rule. what your take on the fed's policy? if your chairman of the federal reserve, what course of action would you take to unwinding the massive bond purchases in your interest rates? >> i think what you're seeing now, what sheila and mohamed are concerned that is exactly those of us who are very worried about quantitative easing warned about when a customer, and that is how do you unwind at? it was clear that something like this was going to happen. you never can predict exactly but this is exactly why so many people were originally concerned, not many more are concerned from nobel prize winners are very concerned with this whole action.

so mighty is at this point you tried to get out of it. it reminds me of what happened in the '70s. people realize that this terrible policy of the fed wasn't working, but it took long time to get out of it. finally, it took a paul volcker to really make a change. southington appointing should we should get back to normal policy. wittig good monetary policy for 20 plus years that worked well. we've gotten off of that. we haven't followed rose to speak a. it's very unpredictable. who knows what's going to happen next? the markets are diverted. if mohamed can't predict them come you can see what it's like. so my recommendation is lay out a strategy to get back to normal policy. you could say if not now when? is not going to be easy. that's what we want about way back when. but if that's what this economy really needs, it needs predictability about policy but it needs to get back to normal policy. go around the world and talk to central bankers but the they crd a vacancy back to normal kind of policy.

they don't like this. >> [inaudible] would you advocate tapering in september? >> i would get started with it. they have laid out a plan already. have to worry about how they communicate this. i don't think the strategy is laid out as carefully as it could be. there's going to be a transition but i think the strategy, we have recommended strategies the last few years to make sure the tapering is, i say tapering means stopping the purchases is done before used start to raise rates and then i think you have to draw down this balance sheet. that's going to take some time. it's not easy. >> right now we are on course for lifting interest rates 2015, which advocate that or something similar? >> i would say right now there's a bit of an inconsistency in the policy statement, the forward guidance. the idea of a zero rate in 2015, even if the economy is sluggish

like we unfortunately think it will be, it's probably going to look too long when 2015 comes rhetoric so that inconsistency is in the market for i think at some point i will be resolved. right now, in other words, they are promising 2015 to zero rates, contingent on employment, but when the time comes is most likely going to have to be higher. that inconsistency has to be resolved. >> your name has been brought up in certain circles as a potential candidate for chairman of the federal reserve. we know current chairman ben bernanke will be slowly stepping down in january. any interest in the job? >> absolutely not. >> really speak with you know, one thing that's great about our country is we have a civil society where people can be on the outside and comment and criticize, and i think that, i'm very comfortable with that role. [laughter] >> all right. mohammad, what happened when the fed begins to pull back its bond

purchases? how will that impact the economy estimated do something this fall. will it hurt, will it help? >> so, we do need to get back to normal. i think it's going to take a long time to get back to normal, and john, i'm waiting, plus the other things happen, so unless the political system gets better and enhancing structural reforms, and in less the drag, the headwinds that we face and the rest of the world, okay, incredibly low even in 2016. i'll take it one step further. in the short term, what i going to have? the fed purchases have inserted a wedge between sluggish fundamentals and housebound. the reason why people like sheila, john and i were is we worry that the behavior of. isn't consistent. people are taking too much risk.

i remember sheila wenches at the fdic was very worried about safety mismatch, that banks were taking ask the fed was forcing the long end of the curve down. that's important because if they cannot control the long end of the carpet it can control the short end of the crew. what your going to see is one of two things. either the fed's policy will work, low probability but it may work. it will pull up the fundamentals. and the fed will paper for -- tape and for good reason. why? it doesn't need to press the accelerator so much. just to add to what john said. this is not hitting the brake. it's about getting the foot a little off the accelerator. alternatively, and that's the risk we think is more probable, asset prices will come down to reflect the fundamentals. and when that happens from unfortunate that becomes a drag on the economy and that's the thing we worry about most. >> can i just make a comment about the impact?

if you think about quantitative easing three, it was first announced september of last year and then it was announced in december of last year. the 10 year treasury rate was 1.7 both those times. they got to 1.9 this week. sorry, 2.9 this week. i really see no positive effect on rates from this quantitative easing. forward guidance perhaps, but, you know, it's just not there. and in terms of the stock market i know many people think it's really a boost to the stock market but if you look at fundamentals, you can explain a lot of what's happened. so at this point i think people really need to realize, really we don't know the impact of these policies. it is experimental. and as i look at them i see them as basically negative. and so to me, there's a reason -- and i'm not the only one. i can give you a long list of experts in the markets and

economy as well. they worry this is a drag at this point. so yes there's going to be a negative adjective out of it. there's an adjustment. but told me i think it will be better. >> mohammad, to your point that you think interest rates will still continue to be zero until 2016, the fed is a way begins to taper purchase if they will keep visitor interest rates until the labor market improves. are zero interest rates a trap? i put this question to you with a backdrop of japan. we're all talk about trying to unwind these policies but japan has been the poster child. they have been pursuing quantitative easing and so interest rates for 20 years. >> so at the risk of being controversial, okay? first of all, they are a trap because i tell you we are -- [inaudible] they are trapped in that sense. are they trapped in the sense that we are staying,

underestimate the impact? well, then you got to them with the counterfactual is but if the counterfactual is the of the parts of policies will get the act together, then they are a trap. if they are discouraging the more hazard, allowing politicians to be complacent to settle the economy is not in recession. it's growing 2%. then they are a trap. but if the alternative is absolutely no support for the economy, then they are not a trap because it is much worse. i just want to go back to this notion of what's happening. i have a 10 year old daughter. i am particularly, particularly sensitive to the details of the unemployment report. and i look at two things among the many every friday, first friday. one is what is youth unemployment your 16-19 euros.

so people have less school, unemployment is 25%. that's really important because at that age, if you remain unemployed for long, you become unemployable because there's a continuous entry into the labor pools the people are very much like you but have been sitting at home doing nothing. so an employer will tend to go to someone -- so that number, the longer it sits, so every anything that can be done to support the economy and even better to make sure we have the skill sets. the second number is the unemployment rate depends on what education you get. so the average 7.4 presented it's not a good average but that's the measure that everybody sees. if you've got a college degree, it's 3%. if you haven't finished high school its 11%. talk about something that contributes to income equality, it's right there. >> we're going to talk about how to get out of this animal but before that, i want to talk

about the u.s. financial system. september will mark the five year anniversary of the financial crisis in the collapse of lehman brothers. we've spoken to the fed's unconventional policies, perhaps out their country being. what is the state of the banking system now? >> well, i think it's certainly safer than it was in the lead up to the financial crisis but it's not as safe as it should be. so me of the rules that we need to have have not been finalized yet. we have got more capital to banks come primary the stress obsess. why worry about sustainability over the time for giving good rules proposed to significantly raise the amount of capital that large financial institutions need to fund their risk-taking. but those rules have not been finalized yet. they were just proposed this week, or the revote on some time ago but just went out this week

for comments. so there's just as much work in progress. enhanced prudential standards which was a key component of dodd-frank for again for the large financial institutions. they were proposed well over a year ago by the fed, still penny to very courageous rules, especially nothing meeting interconnectedness which was a huge driver of some of the meltdown we saw, or the beginning of meltdown we saw in 2008. but again, there's a lot of pushback if we don't know what will happen. the volcker rule is to of the. now there's a next you before that's finalizing event people have different views about the impact of that but nonetheless i think it's important legal certainty, standpoint, to give these rules done. so i would have to say that has been some progress on, not enough. those focus on large financial institutions and instability to create those are coming in, barely charted put essentially doubling capital crimes for the eight largest of

interconnectedness. for total assets as opposed to simply risk weighted assets. usage of been in favor of strengthening and you think this is a good idea. so to banks have come will have sufficient padding with the new rules in place to expand -- withstand another financial crisis because we've advocated 8%. there at 6% now for insured banks. only 5% for the holding companies to calm -- to consolidate capital. i think the minimum should be eight. 6% is still a huge improvement. i was for discipline the fed went with a return number. that's counterintuitive to me. seems like they should be tougher if you're going to be a source of strength vacation having injured banks subsidize greater leverage at the holding company. so i hope the fed will change that. but i think those are tremendously positive and very many full and tangible. i think at least another 90 day

capital and again will advocate a healthy we can strengthen those rules even further as the raiders will do so before their finalized. but this is important i think capital more than anything give you a stable financial system. we don't know what the next stupid thing maybe but we do know that if you've got capital there's going to be annexed depression of losses. and we learned these hybrid instance don't have lost disturbing capacitor and crises. that has been changed fortunate. the focus of primary on common equity. so again some progress but i think of all the things that were done so far for prudential stand for banks that much i leverage ratio. >> with the new rules act to retail lending? that's always the complaint. >> is not a good time to raise capital star member in 2006 when i became chairman of the fdic we were fighting off this advanced

approach which would've let the very largest institutions take on a lot more leverage. altavista showed it would've been able to take on a lot more leverage and we thought it off. but then we're hearing from banks, okay, we don't need more capital. is good times last forever. you're not having more bank failures between on-demand service. let us use as much leverage as well. that's what they said in good times good and bad times, you can raise or capital. it will hurt our ability to win. so it's never a good time and i just had to get out at this point. an interesting thing to on risk weights versus the leverage ratio, actually the way they risk a way that is you have a pretty tough capital requirement for a loan to its securities entities that can really gain with your models and have extremely high levels of leverage funding those types of exposure to so with the leverage ratio you're going to be reducing the capital investment in answers of derivatives over lynn and i think we'll get more lending. >> if the new cap requirement to go through, what across the nation's banks to break up and

become smaller? >> so, i don't know if it would be, despite a lot of hyperbole but i think the numbers we're talking, no. they may get small. selling assets one way to do this. some people say that's terrible. i don't think that's a bad thing at all. >> do you think downsizing would unlock economic growth? >> that's right. i think it's really complexity and interconnectedness. but it certainly large, the more difficult it is for you to manage. miss. so begin to extend the leverage ratio with its securities and derivatives harder and lending, it's that part of the book is going to be reduced. i don't think that's a bad thing at all. but again if the fed continues with higher leverage outside of the bag that may just move into the holding company where the strength -- i don't think that is a good result at all. i think there's plenty of

studies that show the better capitalized banks do more lending and particularly do morning when you get into a downturn because they have capital to ignore losses and keep staying out. that's what he saw the smaller banks, traditional banks are a lot more lending to the crisis and the big was that these huge securities and dreaded portholes. those are the ones that were suffering the mark lost. it's commonly said that loans gave us the price of the employer, their a lot of bad mortgage loans. but what accelerated and magnified those losses were all the structured products, all the synthetic derivatives and mortgage-backed securities that were held in market to market for voters. the sudden losses on those and magnifications of the drugs position but that's really what got us into trouble. i think just the underlying loan losses come substantial as they were, the loan document over time. they are not mark-to-market. i think the system could have absorbed that. again getting back to do more lending and less of these more global trading positions i think it's a very positive thing.

>> professor get a, weigh in on this. what you sense of doubling capital requirements for the eight largest most interconnected banks? banks? how will it impact the flow of credit and ultimately back to the economy? >> is not a doubling. some of them have hired already. wells fargo numbers are probably up of what they were, but we'll have to see. i think it's correct to look at this leverage ratios rather than risk weighted, to some extent. it's a step in the right direction, but the numbers show now that the leverage ratios, depend on a measure rates from 3% to 6% on average. i don't think 8% is going to be a problem, then gradually -- why are you doing this is the question. part is to reduce the risk in the system, and also if there is another panic or if there's another event, let's face it, we have the some time to time. you don't want the government to get into another mode of having to bailout. that's really a dangerous

situation but the expectation is dangerous, and so by having more capital i think subordinated debt can help as well. you reduced that need and you reduced the risk and i think that would improve the financial system greatly. >> ms. bair, a couple of senators have proposed the idea of a modern-day of glass-steagall. good idea? .edu? overlap of dodd-frank? >> so, i think bad idea. i think that it will gain a lot of traction. i think other than that it's out there and i welcome it. it puts pressure on the regulars saying we don't think you're doing enough. we think may be more dramatic reforms are needed so i like the fact to have a 15% leverage ratio. so i think that's positive. i have argued in my book, i don't like insured deposits to

fund investment banking enter the market banking that i would like to the album of the. i'm okay and within kept in synchronization of lobster certain firewalls. make the market fund. it would be more expensive for them to do if the market has defined it. and i think that will create greater market discipline on those kinds of activity which are much higher risk. that's what i've argued in a a complete split would be fine with me. i have it not pushed that far but i think it's tremendous that the bill is introduced. it's a good direction it goes in the right place at the postmortem pressure on the regulars to do more. >> let's talk about what needs be done to pull america out of this. what policies, programs should congress or the administration undertake to get this economy going again? you spoke to at a little bit but you can tell been more. >> so analytically we need to do two things. first boost actual growth to its potential. a little bit higher given how

much -- [inaudible]. second went to enhance potential growth. so these are the two steps. the first step is going back to what i spoke about. actual growth that is held back by first a lack of structural reform. everything from infrastructure to facilitating the function of the labor market. labor mobility is going down in this country. has been a huge advantage of the united states over the rest of the world. giving clarity to companies about the fiscal regime is going to look like in three to five years time. if you're planning to invest, you need have someone in just no with the fiscal responsibility and. that's why companies prefer to hold cash that will earn zero, or give back to the shareholders rather than invest. so you have a whole set of structural reform that can enhance immediately productivity that can also contribute the money being put back in the

system. i believe you can safely expand aggregate demand. a bit less monitor, more focus on infrastructure and return an infrastructure investment return in this country squad i. for those who didn't live like john and i didn't through the emerging market crises, a debt overhang discourages new capital from coming in. if you don't know, think of detroit. would you lend to detroit today? no, you wouldn't because you first want to find out what's going to happen to others who lend to detroit and then to much money and so we had to do with that. then there's the longer-term agenda. it has to do with potential growth. that speaks to education. it speaks to some really microstar that we should be doing and that right now, one of the problems about the fed leaning the center of attention come is it the first discussion away from all these other things.

so everybody focus on the fed cup who should be the fed chairperson, et cetera, et cetera. this whole set of other things that needs to be more important for us, answer me for the next generation, that the whole narrative has been shifted away from. >> mohammad, the white house global economics, what types of new projects are you working on, ideas, perhaps for 2014? >> so, you have promoted me. okay, i'm very privileged to be chair of the council on global development. and the notion is very simple. is that part of securing the u.s. national security and economic future is living in a global neighborhood that is more prosperous. that has enormous advantages in terms of the security threats we face.

we also major exporters to the rest of the world. so if the rest of the world is doing better, we will do better. and it's the right thing to do. combating poverty, combating child mortality. it's helping to eradicate diseases that should be eradicated. so the idea is to contribute and bring an outside perception. we are a council that is made of people from very different backgrounds and extreme this, so it's a wonderful collection of people. we have gotten to know each other the last few months but we're working on a few major initiatives. and our hope is to supplement what's going on within government. with a view to enhancing america's contribution to global development. >> ms. bair, how do we rejuvenate the american economy? >> well, again, i think we need stronger political leadership,

elected officials. we don't have a fiscal policy. we've got too much monetary policy. we don't have really any fiscal policy. the lack of attention on job creation has been astonishing to me. i think, as i said before, you know, the different ways to approach it. i am big on tax reform. getting rid of all these tax expenditures, the government is getting a tax benefit versus what may make more economic sense are very harmful. get the top rates down. more competitive internationally. gives corporations -- i think we should give major infrastructure spending. i think you should only fund projects that over the long term can be self-sustaining. but i think we should do. i think we should be all in. that is a role for government. that's better than subsidizing housing friend because of external benefits. so i would love to see the. the republicans have a long, proud tradition of supporting

infrastructure spending in the past. we need to get smarter about our education policies. we need a re- trained workforce with greater technical expertise. we need immigration reform done right but we also need to make sure there are jobs there. this immigration reform could help with the demographic challenges we're going to be faced as the baby boomers are but we need to make sure i jobs there for them, too. i think those would be on the top of my list, that it's again, people just seem to want of excuses for not doing anything, or stopping each element somebody comes up with initiative. backed an earlier point, i'm afraid government can't do anything, that's a this would induce a complacency sets in and they don't even try anymore. >> mexico had this problem but i do you guys saw this article in "the wall street journal" last week, and the economy of the country very much drifted off. and now all of a sudden they've got a new leadership in place and essentially made a pass to

cover my to is that something we need to do? >> you know, i talk about when i worked in the senate in the 1980s, the 81 tax cuts, the 80 to deficit reduction, your member all those, don't you, john? 86 tax reform. we will again, clean out the tax code. those are all compromised the republicans and democrats worked together with spending cuts and revenue approaches. and it worked. and it gave us many years to prosperity and it would be lovely to see that again. but now it's more people, short term is an asset in and our markets and also in our political system. you're focused scenes in which the next election cycle. i must say i don't get that. wide you want to even be in public service if you're not leading? if you're in government you have response but to govern.

i to understand that the it was at a different time when i worked in the senate. >> how do we jumpstart the economy? >> the paperback version of my book on this is just out mac it's called first principles, five keys to restoring america's economy. seriously, i think we have a come at least a reason history of longer history you see the kind of things that made the economy strong and make the economy week. i pointed to by things. the more we pay attention to the rule of law, predictability a policy, emphasis on the market, incentives, and the role of government judged on basic cost-benefit analysis. have government do with the private sector can't do and limit it at the. so based on that philosophy, i think it's pretty clear. on fiscal policy there's still unpredictability. there's too budgets out there, the senate and house which are so far different from each other, different philosophies. that's got to be settled. we didn't mention in parliament reform.

don't forget that. that's really one of the big debt issues in the future is coming in some certain about that would provide predictability. on the tax code i agree 100%. it's a no-brainer that we need to get corporate rates down and we need to have reformed for the personal system. unfortunately, it's got tight in tax reform has gotten tied into the notion you get more revenues on spending. ..

>> we're toing and froing about it. that affects firms' behavior. you talk about this part-time worker issue, let's face it, that's a drag on the economy. we've got to think about how we deal with that. so compromising isn't easy for this reason, because there are different philosophies about what will work and what won't. and i think that's why discussions like this are helpful. it's really sometimes doing the right thing, not just compromise for compromise's sake. >> no, i just -- i agree, absolutely, on entitlement reform. the sooner that happens, the less painful it's going to be when eventually those programs become underfunded, and and the regulatory uncertainty is very important, and i get frustrated with all the pushback on getting the rules finalized, because at the end of the day i think our system has proven to be very resilient, and the financial services industry and just financial services' interest to get these rules done and getting down to business.

>> let's talk about the president's proposal for corporate tax reforms, since both you, ms. bair and, professor taylor, brought it up. the president's prooazing cutting to 28% from 35%, but the president has said in exchange for simplifying the tax system, he would like to use one-time funds raised to repair roads and bridges and improve education and community colleges. republicans have said this is a nonstarter. politics aside, is this at least a step in the right direction? mohamed, you first and then ms. bair and john taylor. >> there's an example of a tax reform that meets the test that john taylor put out which is you lower the weight, you expand the base. it is better for growth, and it also provides an opportunity to invest in something that we desperately need that private-public partnership cannot do easily.

private-public partnership are really important, but there's certain things in infrastructure, for example, where you need the public sector to take the lead. it hasn't gotten anywhere. i would go back to the president's job plan last year, okay? most people would agree to many components of this. again, it doesn't go anywhere. and it speaks to what john said which is the minute a proposal is put forward, the political system encourages not consensus building and not modification to make it a better proposal, but the political system encourages that it should die. and that is a problem. and i think it has to do not only with our two-year cycle, it has to do with the reality of something that's been written about a lot which is if you are running for re-election, your most likely threat is not the other party, but it is the extreme of your party, right? so that impacts the behavior

when you're in government. and why good proposals -- and there's been many more that's gone to congress -- are not even discussed on the basis of merit. >> ms. bair? >> so i think that's really a tactical question more than one for policy. obviously, the trends of both, but tying them together, i think there's an issue about whether that's smart tactics. i think getting corporate tax reform done in and of itself is important. capitalizing the infrastructure bank is important, coming up with money for that, but whether you're going to get up either one because you're tying the two together, i don't know. so i think -- my commentary would be tactical, not so much policy on that. >> yeah. this is a very important question. when you talk about tax reform, i think it is best to think about tax reform period. and that is because it's so important for economics. that's the goal. more growth, that means more revenues, that means lower unemployment. and tax reform means lowering

those and broadening the base. so, basically, you're not trying to generate more revenue. most frequently, the successful tax reforms have resulted in less at static revenue. some people are going to be hurt by these base broadenings. so you're stacking the cards against tax reform if you link it to these other things. whatever it is, they may be good to have, they may not, but you're linking, and that reduces the chance. so i'd say take tax reform the classic way president kennedy, president reagan got it through, sheila referred to the 1980s, and it would be a tremendous boon to get that tax reform done, let alone just the corporate side, but the personal side as well. >> professor taylor, how about the new american -- what about the new american energy boom, the natural gas and oil thanks to fracturing, could that bring

manufacturing back to the u.s., lower energy costs? >> it's a very important thing. it's an example where regulatory policy makes a big difference. if you basically encourage these kinds of activities and don't discourage them, it could be a tremendous boom. to me, it also reflects the reason to be optimistic about the united states. i made the analogy that this economy has has a huge weight behind it. if you remove that weight, we could get back to higher growth rates. i'm worried this recovery will never become a real recovery. that's the pessimism. remember 5.2 growth in the early 1980s after that -- 2.2 now. we may never get back to that, and that would be a real disappointment. but if we recognize there's this great potential in the united states, energy is just one example, we can do it. >> well, i just go back to taking a card out of mexico, right? passing a law to make members of congress compromise, because it

seems like a reoccurring theme in this panel -- >> the example of mexico is good, and this new administration in mexico's even better. but, you know, mexico's been doing pretty well relative to the united states during this expansion. you know, the net immigration flow has actually become zero between mexico and the united states because of the mexican economy which has done better than the american economy over the last few years. and at least until recently, emerging markets themselves, it's almost opinion like a trading places -- been like a trading places. we used to encourage emerging markets to follow these principles i just listed, and they have for the most part. at least they're moving in that direction. and we seem to be moving away. and i think that's discouraging. we really should be following the principles that have head this country great more than we have been recently. we don't know what's going to happen we merging markets. i think going back to monetary policy, they've been jolted to some extent by our own monetary

policy. see the headlines yesterday in "the wall street journal," india is shocked by the removal of quantitative easing. so we've sort of done some of this ourselves. and the more we can get back to our principles, i think the better off we'll be. >> professor taylor, what about immigration reform? it's obviously a fluid piece of legislation. ms. bair brought it up quickly. depending on what form the bill does take, is that something that could boost economic growth as well as shore up the u.s. social security system? >> i think long term it's good for growth if we get something through. it will also be good for politics, we'll have accomplished something people can point to. we're not there yet, but i hope we can be there. but i would not point to that as the magic bullet to get the economy moving. >> certainly something that could help though. any thoughts on immigration reform, mohamed? >> so i think we should have had it a while ago, and if you just look at what's been proposed and you look at the impact long

term, unambiguously positive. not that it has any short-term thing effects, but again, it speaks to a political system that cannot get its act together. let me, let me mention one other thing, and ron introduced it. there are two views about the role of the u.s. in the global economy. one view is the stronger we are, then the better the global economy is and, therefore, we should do whatever it takes to get stronger irrespective, irrespective of what the negative personalities are. that's one view. the other view is we are the issuer of the global currency, the reserve currency. we provide a lot of global public goods. we are at the middle, in the middle of the global system. so we hold it together. and, therefore, when we implement policies, we need to think about the feedback loops

to the rest of the world. and i think that what's happening today to pick on what ron has said if you look at the newspapers, the rest of the world finds it very difficult to navigate a world in which the u.s. is behaving the way it is. and the result of that is that the most powerful engine of growth in the last few years, the american world, okay, is slowing down. and the reason why u.s. companies have been able to do well despite the sluggish economy in the u.s. is because they've been selling abroad. and now the risk is that we see increasing policy incoherence this countries like brazil, in countries like indonesia, in countries like india not because they have suddenly become inept, but because it's just very difficult to navigate a global system that's so fluid with capital flowing in and out, all right? and they will tell you that they are dealing with what's called --

[inaudible] and this is a really important thing to think of. when a tourist goes to a development country, they normally go with great enthusiasm, you know, they're going to see lots of nice things, etc. then suddenly, something goes wrong, and they don't know the country well enough. their first reaction is to go to the airport and get out. a lot of capital has been pushed out of the u.s. and has gone to countries, it's called crossover capital. it's not dedicated capital, it's crossover capital with investors who don't understand the risks they are underwriting. so the minute something goes wrong, even if it's temporary and reversible, the temptation is to bring the money out, and that is what you're seeing going on right now in the american world, and that's very destabilizing to countries that have been pursuing pretty good policies so far. >> all right. we have just a couple minutes left, so i'll go ahead and open

up the floor to any journalists, i underscore accredited members of the press, who do have a question for think of our panelists. -- for any of our panelists. >> yes, you mentioned entitlement reform, and one of the things that came up is health care. and, of course, health care is seen as the biggest threat to the government in terms of, in terms of paying for things. so that being said, what can we do about that? should we continue with the affordable care act? should we adopt a single-payer system? obviously, doing nothing won't work, so what would you recommend? >> the, there are programs that are already existing for a long time like medicare for which the projections of spending are just growing and growing and growing. we also have social security as well. but in the case of medicare, there's actually bipartisan agreement, i'd say, that we need

to control that growth. the president a couple years ago said it should not grow much more than gdp. the house republicans have also agreed. there's a difference about how you do that. house republicans want to decentralize, as you know, and the president wanted to centralize it. but it seems to me that's something that we could come to agreement on. it's really not about current retirees, it's about future retirees. and it makes so much sense. and, again, people know it has to be addressed, so i would try to go after this medicare issue and, of course, the affordable care act is even more difficult now because it's become so partisan. but i think that's also something that could be improved. i'll just put it that way, could be improved. but in the meantime, focus on entitlements that are clearly expansive right now like medicare. >> time for one more question. >> get reaction from chairman bair specifically on a story in this morning's "wall street

journal" related to the financial crisis, and when you were at the fdic, you were prosecuting fraud and banks. attorney general holder says he's getting ready to bring a whole bunch of new cases here and wanted to get your reaction to that. and is this because we're five years into the crisis, are these cases too complicated to get done quickly, or is this something tied to the anniversary of the crisis that the administration -- are there cases out there that are is still prosecutable or worried about the statute of limitations? >> right. well, there is a five-year statute of limitations, so that may be part of it. yeah, i think the layman anniversary, scrutiny, there's been a lot of stories coming out. that may have something to do with it, and that concerns me a little bit. look, you want a robust enforcement action, you want good accountability for people who break the law that helps our

markets. we, our markets function by rule of law, so that helps having the accountability, have the certainty of enforcement actions helps make sure that there's full compliance and generates the kind of behaviors that we want to see in our financial system. when you have enforcement actions because there's political pressure to do it, you know, that troubles me too. so i wish we would have had earlier energy about this and more consistency on the kind of cases we're bringing, the kind of behaviors we're targeting and, you know, if, you know, if s&p's doing something and moody's is doing something, too, why isn't there consistency in the enforcement? so i do worry that when enforcement actions can become in response to political pressure or perhaps other reasons, that you lose the benefit of enforcement which is accountability and changing behavior. so i, i shouldn't be so negative. the positive spin is, you kn,